Beware choppy zone as triplets soar

Editorial | Mary Ma 14 Jan 2020

The Hong Kong stock market closed yesterday with the Hang Seng Index edging near the 29,000 point amid turnover of more than HK$111 billion.

The last time the HSI got so close to 29,000 was in July 2019. The level has become a resistance point since the local market fell from its record high reached in January 2018, but the SAR market seems to have ushered in a promising start for 2020.

It has been even stronger on the other side of the world. In New York, the Wall Street continues to perform strongly after more than 10 years of bullish charge, with the Dow Jones Industrial Average advancing towards 29,000 - which will be a new record for US stocks.

It appears that Hong Kong and the United States are moving in tandem again after having performed separately in recent years.

However, could this be just an illusion?

Yesterday's large turnover was probably made possible by an inflow of smart money looking for markets that have been undervalued as investors locked onto the robust US market, where the value of American stocks has grown four-fold since 2009 to become very expensive these days.

If you among those investors, would you start looking elsewhere in the East, including Hong Kong, to search for new growth opportunities?

While it is definitely premature to conclude the time has arrived to swap stocks, it is a universal trend that has been repeating itself in history.

The surges in both HSI and yesterday's turnover had much to do with the so-called "ATM" stocks - namely Alibaba, Tencent and Meituan Dianping.

The open-sesame magic spell continued to work for Alibaba, clearing the way for its share price to shoot past HK$222.

Tencent adhered to its rising trend that began in November 2019, exceeding the HK$400 landmark again.

Meituan rose 3.5 percent to a record high of slightly more than HK$113.

Don't forget the old saying that one should buy the rumor and sell the fact.

The "rumor" that has lifted stocks these days is the news of Beijing and Washington's imminent signing of a temporary trade deal on less sensitive items.

This is news rather than rumor and has been anticipated for several months.

With the chance basically non-existent of an anti-climax emerging at the final minute, the indices here and in the United States may, instead, propel further to hit 30,000 after the partial deal is signed and the related suspense is cleared.

However, the 30,000 point also marks the start of a choppy zone.

Would it be realistic to expect further good news during the election year? In the absence of such good news, would investors redeploy to benefit from markets of greater potential growth?

And should that happen, would it trigger a feared "melt-top" in the United States? While a major correction in the United States may lead to capital flowing to other destinations, would it also send shockwaves throughout the world to increase volatility?

It's a double-edged sword.

The "ATM triplets" may be attractive, but they're no longer bargains after having surged so much. Would it be wise to consider getting some money off the table first?

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