The year 2017 looks set to be dominated by uncertainties and hostile trends.
First of all, the loose monetary policy over the past eight years has finally come to an end, and interest rate normalization could harm the banking sector and drag on the global economic growth.
Cheap money has boosted the internet sector and other new-economy stocks. Tighter liquidity could therefore bring some adjustments.
US President-elect Donald Trump will be a key source of uncertainties for the global economy.
It remains unclear whether he could deliver tax cuts and massive fiscal stimulus to bolster US growth as he has pledged.
It won’t be easy to persuade US multinationals to move their factories back to the homeland simply by offering them tax benefits.
The Trump administration needs to figure out how to use automation and new technology to offset high production costs and make US manufacturing competitive again.
Meanwhile, Trump has been vocally hostile towards rising China, and both nations may encounter more frictions over issues like trade protectionism.
Also, elections in France and Germany early this year may bring more instability to the eurozone. The United Kingdom will start official negotiations for leaving the eurozone this year.
The prospect of higher US interest rates and potential trade conflicts with the US have a strong bearing on China’s stock markets. Rising tensions in the mainland bond market could also send shock waves to equities.
As regards Hong Kong equities, an upside will be limited in the near term, given the above global uncertainties and issues facing China.
Tighter control over capital outflow also means expectations for Chinese investors to prop up the Hong Kong stock market won’t be realistic.
As a result, the Hang Seng Index is likely to hover in the range of 21,000 to 22,500 points.
Certain sectors like property could feel more downward pressure amid jitters about a faster than expected pace of rate hikes in the United States.
This article appeared in the Hong Kong Economic Journal on Dec. 30.
Translation by Julie Zhu
[Chinese version 中文版]
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