A dotcom deja vu in the making

There's a sense of both deja vu and jamais vu in the stock market between now and then.

During the dotcom bubble around the turn of the millennium, any stocks claiming to have even a little to do with the internet were instantly hot.

Businesses based on concept rather than revenues were presumed successful.

Since the pandemic, new-economy stocks have become king in a phenomenon we're all too familiar with from before.

But it isn't exactly the same. US stocks like Amazon, Apple and Tesla, or Hong Kong stocks such as Tencent, Meituan and Xiaomi all have working business models and make profits.

The problem is that too much money is going into them to keep them artificially huge. That can be cause for concern.

The SAR's market has been mirroring that of the US.

While the Dow Jones Industrial Average has not yet managed to get back to its historical high, the Nasdaq has overtaken its past to set new records day after day. The S&P500 is closely following suit.

Amazon has doubled since March and Tesla has seen a jaw-dropping six-fold rise in value during the same sprint distance.

Amazing, isn't it? Maybe it's just too amazing to believe.

It's the same for Hong Kong. The SAR introduced a new technology-based index only recently but the most representative handful on ATMX have performed tremendously.

Xiaomi, for example, has doubled since April and Tencent has climbed 67 percent since March. The Hang Seng Index, however, has been moving slowly.

There is an alarming sense of disconnect between stocks and the real pandemic-troubled economy.

Many stocks that matter to normal life are still struggling to keep their head above water. Boeing may have recovered a lot but it is still way below its pre-pandemic level. And aircraft engine manufacturer Rolls Royce, listed in London, has had its credit rating reduced to a new low.

If the Dow Jones has failed to catch up with the Nasdaq and S&P500, it's the same story with the HSI.

Xiaomi, one of the ATMX, gained more than 11 percent yesterday, but the HSI recorded an embarrassing loss of over 200 points, leaving it far below its pre-pandemic levels.

The new-economy stocks have gained from the pandemic as people switched to takeaway meals and spent more time stuck behind their computers at home.

That won't last forever. With progress reported in the search for virus vaccines, people increasingly look forward to going out and resuming their social lives after spending so much time effectively self-quarantining.

Will the discovery of an effective vaccine burst the bubble, starting with the new economy and spreading to others?

The moment of truth could well come after the US presidential election.

If Donald Trump is re-elected, he will no longer have to prop up the stock market. If Joe Biden wins, he is unlikely to manage the economy well.

No matter who is elected, it will be bad for the stock market.

It should be pointed out that the Dow Jones and Nasdaq have stopped correlating to each other.

By the same token, the HSI is disconnected from the hot money going into the market.