Investors continue to keep a close eye on the words and deeds of Donald Trump as the US president has vowed to give a new direction to America’s economic and trade policies.
Although Trump wants to lure more manufacturers to move their production back to the US, the reality is that his country has limited competitiveness in the segment, apart from the mid- to high-tech sector.
Even if Trump delivers on his promise to cut taxes for American firms and impose high tariff on imports, it will take time for that to happen, if at all.
Trade relationship with China is therefore unlikely to worsen immediately. That said, most foreign investors continue to stay away from the China market when it comes to stock portfolio investments.
Hong Kong market is cheaper, but fear of tense China-US relations is keeping foreign investors on their toes even in that market.
Given this situation, massive inflows of overseas funds are unlikely into Hong Kong.
In the near term, company results are going to be a key driving force for individual stocks due to the earnings season.
Fund mangers may use earnings results as the basis to switch their bets.
But we should note that companies with strong earnings have already accumulated considerable gains in their share prices. Going forward, it remains to be seen whether the stocks can sustain the previous gains.
For example, benefiting from stimulus policy, Geely Automobile Holdings (00175.HK) has seen its shares post sharp gains along with improving results.
However, the profit margin may not sustain this year as a result of intensifying competition.
Geely will become a constituent stock in the benchmark Hang Seng Index from next month. Rather than getting excited about its prospects, investors should guard against the possibility that this could be a peak-out signal for Geely, and also the auto sector as a whole.
Among other news, the US Federal Reserve Board’s top bank regulator said last Friday that he would resign. The move by Daniel Tarullo is expected to give a boost to Trump’s plan to deregulate the financial sector which had seen tighter rules in the wake of the 2007-09 financial crisis.
If the Trump administration walks the talk, the banking sector could emerge as a winner, boosting the prospects of entities such as HSBC (00005.HK) and Standard Chartered (02888.HK).
This article appeared in the Hong Kong Economic Journal on Feb. 14
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]