2017 was a good year for me as an asset manager. I did well not because I had predicted precisely what would happen, but more because of the agile response to ever changing market conditions.
I started to be seriously bullish on Hong Kong market only since last June, but long before that I had begun to test the water. Strong performance of the long-term core holdings in the portfolio was also a big help.
Investment is an art rather than science. Therefore, investors should not be obsessed with analysis. Else, they might be slow in reacting to market changes.
For this year, there is much discussion that accelerating inflation and US tax reform may push up US treasury yield and have a knock-on effect on equities.
Some have raised the question as to what sort of yield level would trigger a reversal of the stock market. My answer is, there is no such figure.
The discussion is similar to a football coach talking about the rival team’s strength and preferred style, and then set a combat strategy.
But when players are on the pitch, all those don’t matter that much. There are too many uncertainties for them to cope with; one just have to improvise based on the real situation.
To address the risks mentioned above, my strategy is to set aside 3 percent of my portfolio for insurance. I will buy several options in different markets to prepare for the unexpected, such as the US treasury put option as a preliminary insurance. For the rest of the portfolio, I would position it in a relatively aggressive way.
Certainly, I would watch closely the US treasury yield movement.
The real market is not a controlled lab, and there is no thumb rule. If so, all economists would have become billionaires. Investors should learn to listen to the collective voice of the market, and adjust their strategies accordingly.
Being overly concerned about any single factor won’t be a good idea. For instance, Hong Kong equities have continued the rally despite rising inter-bank lending on Hong Kong Dollar.
In another example, though analysts generally expect capital to flow back to America as a result of the US tax reform, which will contribute to US dollar strength, the greenback has actually weakened.
This article appeared in the Hong Kong Economic Journal on Jan 2
Translation by Julie Zhu
[Chinese version 中文版]
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