Hong Kong has benefited from capital inflow driven by global investors seeking better yields.
This is helped by attractive valuations and the Hong Kong dollar’s peg to the US dollar.
Major central banks are widely expected to pump more money into the system.
But it remains unclear whether an ongoing market rally will be short-lived.
I think so.
Investors should wait for the right time to take profit, pending an announcement by the Bank of Japan Tuesday about the details of a 28 trillion yen (US$237 billion) stimulus package.
Investors are closely watching whether the Bank of England will cut interest rates given recent economic data pointing to a gloomy outlook.
Britain has yet to start formalities to leave the European Union.
It faces a challenge in maintaining market confidence with limited financial tools.
A stress test on EU banks last week reduced the odds of massive monetary easing in the near term.
Also, the US Federal Reserve keeps delaying a rate hike, using mild language to stimulate capital inflow.
Still, a US rate hike this year is uncertain.
Will the Chinese central bank take action? If it does, global capital flows will be reordered.
Investors should keep their stock exposure manageable.
Those who have made huge gains should take some profit and switch to sought-after stocks or sectors.
The Hang Seng index is trading around 22,216 points and could enter 20,000-22,500 territory.
With abundant market liquidity, the index might break 23,400 points.
Investors should pay more attention to the interim results of some blue-chip state-owned stocks after the market shifted to laggard plays from risk-on and high-dividend stocks.
They could stay in the market for a while given sufficient liquidity.
Tencent Holdings (00700.HK) and Fortune Real Estate Investment Trust (00778.HK) are surging.
Meanwhile, mainland bank and insurance counters are being targeted for short-term speculation.
But whether China will reduce leverage in its massive wealth management market remains to be seen.
Hong Kong property stocks such as Cheung Kong Property Holdings (01113.HK) Wharf (Holdings) and mainland automobile stocks such as Geely Automobile Holdings (00175.HK) and Great Wall Motor (02333.HK) and Hong Kong Exchanges and Clearing (00388.HK) are attractive again.
These stocks are likely to level off in mid-August. Investors should prepare to take profit.
Foreign funds prefer second and third-tier stocks with enough liquidity.
Mainland stocks, Macau gaming counters and cyclical plays are benefiting from supportive policies.
Investors should stay away from small-caps that have a high concentration of risk.
Tech Pro Technology Development (03823.HK) saw its market cap slump below HK$1 billion from HK$12 billion in two days after it was targeted by short-seller Glaucus.
Other small-caps are vulnerable to similar attacks.
This article appeared in the Hong Kong Economic Journal on Aug. 2.
Translation by Julie Zhu
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