Financial markets have been affected by uncertainty over the timing of a Fed rate hike.
Meanwhile, the latest US jobs data has turned out weaker than expected, stoking concerns about the sustainability of the nation’s economic recovery.
Elsewhere, latest polls show that there is increasing risk of the UK leaving the eurozone, although many observers have said that Brexit is unlikely to happen given Britain’s pragmatism.
A July rate hike is more sensible to safeguard the credibility of the Fed and avert market uncertainties ahead of the US presidential election.
Investors should prepare themselves for the upcoming rate move.
The Hang Seng Index has returned to above the 21,000 points level and is showing some resilience. The benchmark has rallied nearly 1,500 points from its recent low.
Under the current circumstances, investors should switch from risk-on stocks to risk-off plays — such as telecom stocks and high-dividend plays like PCCW (00008.HK).
Investors should maintain a 50-50 split between risk-on and risk-off stocks.
They can pack half of their portfolio with stocks such as Tencent Holdings (00700.HK), AAC Technologies (02018.HK) and Sunny Optical Technology Group (02382.HK), as well as some mainland banks that could benefit from debt-to-equity swap initiatives.
However, investors should bear in mind that they should take profit quickly if the Hang Seng Index rallies another 2,000 points.
It’s commonly believed that A-share inclusion into the MSCI and the Shenzhen-Hong Kong Stock Connect may become catalysts for the market in the short term.
Hong Kong Exchanges and Clearing Ltd. (00388.HK) and mainland and HK brokerages can be good bets if you want to ride the stock link theme.
Use any deep correction in the market to accumulate these stocks. Nevertheless, take profit at the appropriate time as the market might see some selling when the new stock link is actually launched.
Elsewhere, Macau gaming stocks are also perfect for short-term speculation.
Gold mining plays are among other attractive bets, given that gold prices are benefiting from safe-haven demand and increasing volatility in capital flows.
The yellow metal is likely to trade in the range of US$1,200 to US$1,300 and possibly test new high within this year.
That would help gold ETFs like SPDR (02840.HK) and gold miners such as Zhaojin Mining Industry (01818.HK) and Zijin Mining Group (02899.HK).
This article appeared in the Hong Kong Economic Journal on June 7.
Translation by Julie Zhu
[Chinese version 中文版]
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