Date
28 May 2018
The Hong Kong stock market suffered a drop that was only half as much as the Dow Jones, thanks to the strong – and mysterious – capital flow from across the border. Photo: AFP/HKEJ
The Hong Kong stock market suffered a drop that was only half as much as the Dow Jones, thanks to the strong – and mysterious – capital flow from across the border. Photo: AFP/HKEJ

When the bull in Year of Rooster turns into bear in Year of Dog

The first time it happened, it was scary. The second time, not so much. Now, are you scared or not?

Half of the local papers splashed on how resilient the Hong Kong stock market was, suffering a drop only half as much as the Dow Jones, thanks to the strong – and mysterious – capital flow from across the border.

When these papers went to print in the morning before the market closed in New York, the Dow Jones fell another 1,000 points, and at one point, 500 points within five minutes as I was watching the news on television.

The Hang Seng Index dipped below 31,000, back to where it was a month ago when the amazing streak of going up every day in January finally came to a halt.

And that was when Tencent, Ping An Insurance and Hong Kong Exchanges and Clearing all shed at least 5 percent, along with the big laggards such as HSBC, China Mobile and the property giants.

Of course, everyone wanted the music to last a bit longer at the party. It was such fun. But nothing could defy Newton’s law that what goes up must come down.

It was not too difficult to see that the big bad wolf was coming. Investors could have taken some hints from the rising 10-year bond yields and the widening volatility index that suggest a higher interest rate is looming.

But who wants to leave in the middle of the party which lasted for a year and saw the Hang Seng Index producing a world-beating performance of 35 percent growth?

Last Friday, when the Dow Jones Index tumbled 665 points, market analysts predicted there could be a correction this week and some more profit-taking.

Hong Kong market did open this week with a near 900-point retreat but many investors took a chance and went bottom-fishing. And thus the market recovered most of its losses and closed only 356 points down.

Over HK$10 billion capital from the north poured into the cheaper Hong Kong stocks while the Shanghai index finished with a magical 2 percent rebound.

Investors probably had more faith in Chinese leader Xi Jinping than in US President Donald Trump, but all the world’s equity markets went in one direction and in the end, Hong Kong had no recourse but to follow the trend.

I wish I had a crystal ball – just like some feng shui master at CLSA – and tell you that the market will stay strong in February before reaching a peak in July, but that’s only because you know that forecasts are wrong more often than not.

It’s time to ponder the wisdom of Warren Buffett, the Oracle of Omaha, who said: “Be fearful when others are greedy and greedy when others are fearful.”

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CG

EJ Insight writer

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