The Hang Seng Index gained another 200 to 300 points on Monday, after rebounding more than 1,000 points from its trough last week.
The benchmark is not far away from the target level of 21,500 points.
Investors should buy and sell stocks step by step.
Over the last decade, the Hang Seng Index posted an average rally of 3.79 percent in July, while it suffered an average drop of 2.99 percent in August.
Investors should take advantage of the rally this month to take profit.
They may also have to change their stock selection strategy.
It’s widely expected that major central banks would expand monetary easing or print money to stimulate economic growth and safeguard financial stability.
Brexit has stoked expectations of monetary stimulus measures in the United Kingdom and other parts of Europe, while the latest PMI data in China raises hope of more cuts in the banks’ reserve requirement ratio as well as further depreciation of the renminbi.
Some investors have switched to risk-off stocks that are sensitive to interest rates. A number of real estate investment trusts such as the Link REIT (00823.HK) and utility stocks like CLP Holdings (00002.HK) have fared extremely well.
Some risk-on plays like Tencent Holdings (00700.HK) also outperformed and were sought after by fund managers.
Many fund managers are also expected to adjust their positions for the third quarter or the second half this week.
Individual investors should not rush into the market at current levels. Instead, they could wait for the next correction.
Will the market fall in August? Investors are expecting rallies in Hong Kong, the United States and even in Europe on the assumption that major central banks will pump more liquidity into the market.
Nevertheless, the impact of Brexit will continue to be felt in the UK and other European economies.
Also, negotiations between the UK and the 27 other EU members are expected to be lengthy.
The Hong Kong market has already bounced back to its level prior to the Brexit vote.
However, China’s economic slowdown and the weaker yuan, along with the delayed launch of Shenzhen-Hong Kong Stock Connect, will have an impact on the market.
I suggest investors take advantage of each market correction to collect strong stocks.
Apart from REITs as well as coal and cement stocks, Guangdong Investment (00270.HK) is also a good buy during a market correction.
I also recommend telecom stocks with steady growth such as HKT Trust & HKT (06823.HK) and PCCW (0008.HK).
Property stocks are also attractive, and mainland banking stocks are better choices than HSBC Holdings (00005.HK).
Gold and gold mining stocks like Zijin Mining Group (02899.HK) and SPDR Gold shares (02840.HK) are worth considering because of their good liquidity.
This article appeared in the Hong Kong Economic Journal on July 5.
Translation by Julie Zhu
[Chinese version 中文版]
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