Led by a recovery in old-economy stocks, the benchmark Hang Seng index continues to gain ground.
Nevertheless, we have also witnessed some sharp pullbacks in sectors that advanced notably previously such as Chinese property counters and automakers.
While there should be more upside, it is reasonable to say the best rally might have occurred already.
For those who still want to join the party at the current level, they should bet on the overall market rather than individual stocks because it’s fairly challenging to pick the right ones.
Highly prospective technology stocks have already gained too much. Meanwhile, it’s hard to judge how long the rebound of inexpensive old-economy stocks will sustain.
By contrast, index products offer diversification and exposure to many laggard blue-chip stocks such as Chinese telecom stocks, oil companies and banks like HSBC Holdings. Whichever performs will translate into index gains.
Also, the index futures market has long trading hours and deep liquidity, hence, investors can easily exit if they feel something is wrong.
The Hong Kong market still has reasonable valuation compared with other developed markets. I believe investors would realize sooner or later that they’ve put too much investment in US stocks and that there is a need to diversify. By then, Hong Kong index funds would benefit.
My projection is the index will edge up slowly from now on. But I would suggest investors keep an eye on key support levels, say around 23,900, and adopt a buy-on-dips strategy as long as these key supports are not breached.
This article appeared in the Hong Kong Economic Journal on Mar. 21
Translation by Julie Zhu
[Chinese version 中文版]
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