19 March 2019
Hong Kong has accumulated enormous wealth over the past few years, which should be sufficient to ride through the tough times. Photo: HKEJ
Hong Kong has accumulated enormous wealth over the past few years, which should be sufficient to ride through the tough times. Photo: HKEJ

How to move against the crowd in a volatile market

The Hang Seng Index has tumbled nearly 2,000 points from its recent high, and investors should take advantage of the opportunity to accumulate some high-growth stocks.

The market is likely to rebound after stabilizing between 19,500 and 20,300 points.

In recent months, the benchmark has posted several cycles of ups and downs with a range of 2,000-3,000 points.

Investors should accumulate stocks when the market drops more than 2,000 points and take profit when the market rallies more than 2,000 points.

Meanwhile, they could also buy into different sectors during the switch between risk on and risk off.

Long-term investors could bet on high-growth stocks and sectors like Tencent Holdings Ltd. (00700.HK), AAC Technologies Holdings Inc. (02018.HK), Sunny Optical Technology (Group) Co. Ltd. (02382.HK), China Railway Construction Corp. Ltd. (01186.HK), AIA Group Ltd. (01299.HK) and Kingsoft Corp. Ltd. (03888.HK).

Some Macau gaming stocks and healthcare plays might also outperform the market.

Risk-averse investors should accumulate high-dividend and utilities stocks.

It’s worth noting that various data indicates capital outflows, mainly due to fund redemptions.

By contrast, influential investors have been making bearish comments as they have kept busy building positions.

Actually, there is no solid ground for such bearish views.

Some analysts even described Hong Kong’s economy as even worse than during the 1997 financial crisis and foresaw the city might slip into economic contraction next year.

The city’s housing market is undergoing a correction, and first-quarter growth in gross domestic product moderated to 0.8 percent.

Various economic sectors are heading for a difficult year, and the unemployment rate is facing the risk of a pick-up.

Hong Kong has posted strong economic growth for quite some time, reflecting China’s robust growth and an extremely low interest rate environment.

And the city has witnessed signs of an asset bubble.

A shortage of land supply has pushed up property prices, and that weakens the city’s competitiveness.

In fact, the city has accumulated enormous wealth over the past few years, which should be sufficient to ride through the tough times.

It’s a cyclical correction under the free-market system like those we’ve seen during every economic slowdown and consolidation in various industries.

The property sector was the best wealth creation sector in the city during the bull housing cycle for 15 straight years.

As a result, more capital has flowed into the sector, and the economy can’t find a new growth engine.

The Hong Kong government has made a U-turn in its land policy and moved to increase supply.

Meanwhile, there are increasing frictions between local residents and mainland tourists.

That has created a shock for several pillar industries, ranging from tourism and trading to financial services.

I prefer to view the economic slowdown as a constructive storm.

If it helps attract capital into other industries, the business environment would improve, as businessmen face less pressure in rent and wages.

The local government still has a strong balance sheet to invest in infrastructure projects and pave the way for another bull cycle.

Foreign investors have been bearish on China’s economic growth for a long time.

However, Beijing has paid too much attention to external noises.

In some cases, the government’s policy reaction has been used by foreign investors to reap good profits.

For example, foreign investors have been making negative comments about the onshore credit market, and the government unveiled some short-term pro-stability measures, which foreign investors exploited.

Beijing should figure out better ways to manage market expectations.

This article appeared in the Hong Kong Economic Journal on May 17.

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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