Capital from north cheers Trump fall

Editorial | Mary Ma 19 Jan 2021

There's no denying that the January effect has materialized in the local stock market.

Since the new year began, the Hang Seng Index has been on a steady increase from a little above the 27,200 level to near 29,000, returning to the level where Hong Kong stocks stood a year ago.

The January effect has been made possible by constant inflows of capital from the north.

For example, HK$76 billion flew from the mainland into the SAR yesterday, accounting for one third of the day's trading volume.

Only syndicated investors could have staged inflows of this sort to accomplish the effect over a relatively short space of time.

Some bullish market analysts were quick - or perhaps slow - to add that the HSI may hit 30,000 this year.

Their predictions were amazing - but with more than 11 months still to go, the bullish forecast actually sounded a bit bearish.

Were they suggesting that the year would be bullish in the beginning but may be bearish later on?

It was evident that tons of the southbound capital was concentrated on certain stocks that were traditionally preferred by mainland investors, such as Tencent, Meituan and Xiaomi.

It may also be noted that a number on the US sanction list, including Xiaomi, China Mobile and CNOOC, also benefited from the tidal surge.

Beijing was spending big money to make sure that 2021 opened well for Hong Kong.

The fact that Hong Kong stocks had been falling behind its peers - not only on Wall Street but also in Asia, particularly Taiwan - for most of 2020 has turned the local stocks into bargains.

What's happening of late is like catching up to recoup lost ground.

For quite awhile, Hong Kong stocks had come under pressure due to trade conflicts between the US and China during the second half of Donald Trump's presidency.

This broadened into a wider conflict as the Trump administration tried to isolate the Chinese Communist Party from the rest of China.

This long shadow is disappearing quickly with Joe Biden set to be sworn in as president tomorrow.

And after an unusual delay contrary to US political tradition, Vice President-elect Kamala Harris has finally resigned from the Senate.

Following her resignation, it can be assumed with confidence that any last-minute hiccup to Biden's inauguration can be all but ruled out.

The January effect has already factored in a de-escalation of tensions.

A point to bear in mind at this advanced stage of the month is that what goes up must come down. While the tidal surge has been swift, it could also recede as swiftly.

So will there be a deep correction ahead of us?

Be aware that the external situation seems to be changing course. For instance, the Dow Jones Industrial Average has gone flat for most of the month.

Investors - at a crossroads where things may go either way - should remain vigilant and not forget the lesson learnt from the last "big market time" a few years ago that was also spurred by the mainland.



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