Date
21 May 2018
Despite concerns over the Argentina economy and capital outflow from emerging markets, this sort of crisis is hardly new to investors. Photo: Reuters
Despite concerns over the Argentina economy and capital outflow from emerging markets, this sort of crisis is hardly new to investors. Photo: Reuters

Why stock markets are unlikely to see sharp falls

Over the weekend, all available flats in Mount Regency, a residential project being developed by Sun Hung Kai Properties in Tuen Mun, were snapped up.

Most of the buyers were investing in real-estate in order to protect their wealth against inflation, according to media reports.

Investing in different kinds of assets to protect one’s wealth is a widely accepted concept, given that money is quietly losing its purchasing power. This collective mindset is important in supporting asset prices and predicting the market trend.

I always jokingly say we should rush to buy properties if there is another SARS outbreak.

But if everyone thinks in the same way, housing prices simply won’t slump even it there is another such outbreak.

Similarly, despite concerns over the Argentina economy and capital outflow from emerging markets, this sort of crisis is hardly new to investors.

If most of the people are hoping to pick up some bargains on the back of such negative news, sharp declines would be unlikely.

Investors have seen this several times before, and asset prices typically surge quickly when things go back to normal.

I’m not saying that there won’t be another bear market cycle. But it will happen only if there are extremely powerful negative catalysts that would lead to a sharp drop in corporate earnings.

Given the lack of such threat on the horizon as of now, pullbacks of leading stocks have been limited to about twenty percent in recent corrections.

If there is no reason to be bearish over the long term, the best way is to retain some core positions and sit out the short-term selling pressure.

This article appeared in the Hong Kong Economic Journal on May 15

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Director, Asset Management at Ample Capital Limited.

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