Hang Seng Index braces for pain

Top News | Bloomberg and Tereza Cai 27 Dec 2018

The Hang Seng Index is expected to follow global equities in decline after the US stock markets fell to their lowest this year and Asia shares dropped.

Christmas Day brought no presents for the Japanese stock market as the Nikkei 225 Stock Average plunged below 20,000 and slipped into a bear market. Investors are bracing for more pain to come.

For Hajime Sakai, the chief fund manager at Mito Securities in Tokyo, a combination of panic selling and a lack of buyers in thin holiday trading suggests the declines may have further to run.

"Market sentiment is too weak," Sakai said. "Investors are selling emotionally as the markets keep declining. There are no buyers as liquidity has dropped during the Christmas holidays and year-end."

Brock Silvers, the managing director of China investment advisory at Kaiyuan Capital, said: "Japanese equities continued their year-end plunge [yesterday], dropping 200 plus points [yesterday] after a Nikkei 225 drop of 5 percent [on Tuesday]. Global economic worries, particularly with regard to the US and China, have combined with generally thin holiday liquidity to corrode Tokyo's market support.

"This should exacerbate already weak sentiment in China and HK, where investors are confronting a significantly slowing mainland economy, a seemingly deepening trade war with the US, and globally rising interest rates."

He added that Both China and Hong Kong markets can be expected to underperform today.

The US market is in a slightly different position as the underlying US economy is still performing reasonably well, and declining investor confidence seems impacted by political and media concerns, Brock said.

The steep December drop in US equities could present a significant opportunity in 2019, especially if trade war concerns are resolved, he added.

Some analysts pointed to instability in US President Donald Trump's government as one reason for the declines, citing Secretary of Defense Jim Mattis becoming the latest person to resign from his position.

The steep decline in Japanese equities on Christmas Day came after a barrage of tweets from Trump defending his policies.

Trump on Tuesday reiterated that the US Federal Reserve was raising interest rates too quickly.

"Policy uncertainty about Trump's government is getting stronger as excellent staff members who formed the backbone of the administration leave," said Nobuyuki Kashihara, chief global strategist at Asset Management One in Tokyo.

tereza.cai@singtaonewscorp.com

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