22 October 2016
The slump in the Hang Seng Index on Monday should help cool down the market. Photo: AFP
The slump in the Hang Seng Index on Monday should help cool down the market. Photo: AFP

Investors should look beyond short-term selling pressure

The Hang Seng Index slumped over 800 points on Monday, the worst performer in the global market, amid expectation that the Federal Reserve might hike interest rates as early as this month.

Hong Kong’s equity market has been red-hot over the past two months with the market turnover jumping above HK$100 billion on Sept. 9.

Monday’s drop should help cool down the market.

Technical analysis points to 22,8000 to 23,200 points as the key support zone.

Given the positive outlook in the medium term, investors may consider accumulating shares at those levels.

Among the reasons to stay bullish is the potential fund inflow from mainland insurance companies following a recent policy change.

Despite the emphasis on fiscal policy during the recent G20 summit to stimulate the global economy, rounds of quantitative easing by central banks around the world have created huge liquidity seeking return.

With regard to US rate hike concerns, the eventual impact may be limited.

Eric Rosengren, a voting member of the Fed’s policy-setting committee, said on Friday night further delays in the tightening of interest rates would elevate the risk of the US economy overheating.

Though that may signal a higher chance of near-term tightening, the magnitude of the rate hike will be anything but large, considering the lackluster global economy.

Worries about Donald Trump winning the November presidential election could hit the US market, but such concerns may actually benefit Hong Kong as a safe haven.

For specific buying targets, China banking plays, such as China Construction Bank Corp. (00939.HK) and Industrial & Commercial Bank of China (01398.HK), are worth following as they may benefit from the spillover effect of the jumbo initial public offering of Postal Savings Bank of China.

This article appeared in the Hong Kong Economic Journal on Sept. 13.

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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