24 August 2019
Technology giants are expected to underpin benchmark equity indices. Photo: Reuters
Technology giants are expected to underpin benchmark equity indices. Photo: Reuters

Equity markets look lofty but chance of a collapse slim

Despite the bullish market sentiment, many retail investors have chosen to stay on the sidelines, fearing they could end up being stuck with shares bought at expensive levels.

As the market keeps raging ahead, more retail investors have no choice but to sit on cash

While they hope a serious market setback would come eventually, I have an inkling that the chance of an across-the-board crash is slim.

The fact is heavy sell-offs are already occurring, mainly to companies that are considered victims of technological changes. Nonetheless, the market capitalization of tech giants, believed to be the winner of the new era, keeps surging. This pattern is likely to sustain, hence benchmark indices are going to stay well supported.

Yet, in such a scenario, trading volume and volatility could go down as witnessed in the US market.

Turning to Hong Kong equities, thanks to improved fundamentals and low valuations compared with global markets, the Hong Kong market has posted an impressive rally year to date.

For example, cyclical stocks staged a notable recovery as China’s economic growth stabilized and worries of a sustained slowdown dissipated.

I believe there is still some way before Hong Kong equities run its full course. Investors would do well by holding quality stocks for long-term gains. Share prices could stall from time to time after hitting a bottleneck, but they should resume the uptrend as the underlying businesses continue to expand.

This article appeared in the Hong Kong Economic Journal on Aug. 8

Translation by Julie Zhu

[Chinese version 中文版]

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Director, Asset Management at Ample Capital Limited.

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