Liquidity and capital flows have become a key determinant of equity market performances around the world in recent years, given sustained monetary easing from major central banks.
This is the same case in Hong Kong, where fund inflows from overseas, including mainland China, have provided crucial support for the market.
Following the recent bounce, the Hang Seng Index may stay within the 23,200 to 24,000 points range in the near term.
That said, technical signals suggest that there is good chance of the benchmark testing further upside eventually.
Switching activities might become more frequent. Going forward, stocks that may draw buying interest include Tencent Holdings (00700.HK), Sands China (01928.HK), Galaxy Entertainment Group (00027.HK) and HSBC Holdings (00005.HK), as well as mainland banking plays.
Mainland insurers will also be in focus as the firms can now invest in the Hong Kong market through the Shanghai-Hong Kong stock link. The expanded overseas investment avenues should help the firms improve their earnings.
Meanwhile, tightened regulation over universal insurance products will lead to healthier development of insurance firms in the medium term.
Against this backdrop, counters such as China Life Insurance (02628.HK), Ping An Insurance Group (02318.HK), China Taiping Insurance (00966.HK), PICC Property & Casualty Co. (02328.HK) and New China Life Insurance (01336.HK) will be good investment targets.
As for the immediate term, market participants will be keeping a close watch on central bank meetings in US, Japan and New Zealand this week.
Capital outflows from the US dollar bond market shows investors are already preparing for a rate rise.
If the Fed hikes rate this month, the odds of another tightening move for rest of this year or even first half of 2017 would be limited. That would remove the biggest uncertainty for the market and pave way for further gains.
Regarding Japan, as it ponders over taking its negative interest policy further or using “helicopter money” to stimulate the economy, the policy move is likely to be good for the Hong Kong market.
Nevertheless, historical data shows that the stock market usually doesn’t fare too well in October.
But if we are to hazard a guess on a factor that could really cause a serious setback to the market next month, it could well be this: any indication that Donald Trump is gaining serious ground and boosting his odds of winning the US presidential election in November.
This article appeared in the Hong Kong Economic Journal on Sept. 20.
Translation by Julie Zhu
[Chinese version 中文版]
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