by winston » Fri Jul 20, 2018 6:21 am
Where is the bottom of the stock market?
by Ivan Tong
Hong Kong's stock exchange has been witnessing a strange phenomenon of late. Despite market conditions being weak with shrinking turnovers, the IPO market has been buzzing with activity.
The gongs at the bourse - which are used at listing ceremonies to mark the beginning of a company's trading - have not stopped ringing.
Fortunately, Hong Kong's stock market is more mature than its counterparts on the mainland. If this had to happen in the A-shares market, investors would definitely cry foul and ask regulators to put a halt to new listings.
My question this time is: Where is the bottom?
As there is no crystal ball for the market, no one can tell when Hong Kong stocks will hit the bottom. However, there still are some key indicators we need to pay attention to.
The most important indicator, of course, should be the yuan's movement.
The total turnover of Hong Kong stocks dropped to 70 billion in recent days, making local equities more prone to be affected by A-shares. However, A-shares almost track the yuan's exchange rate.
For instance, though the US dollar retreated last night after being boosted by the US Federal Reserve chairman Jerome Powell's speech, the yuan still dropped below 6.78, stopping the rising trend of stocks in Hong Kong and China.
The depreciation of the yuan raises many fears. If China's government is not involved in this - or if they did not take advantage of the currency to fight the trade war - then it becomes all the more worrying, as it would mean that the yuan's slump is tied to capital flow.
If the slump deepens, there will be more capital outflow and it will be much more difficult to break this vicious circle in the future.
Fortunately, the global stock markets are still stable. The A-shares loss is the second worst after Turkish shares, and we have opportunity to find the short-term bottom.
Hong Kong stocks valuation has become more attractive. With companies due to post their results shortly, the Hang Seng Index may find its real support level if the results indicate good performance in the first half.
Though trading volumes have been low in recent days, there are still points worth looking at. Xiaomi (1810) was at first underestimated but then surprised us by setting new highs several times, until a sharp correction yesterday. It not only showed speculation but also unmatched transaction volumes.
The World Cup has come to an end, but this has not helped the stock market either, and the situation might not improve until company results start to flow in.
Therefore, I suggest that shareholders be patient instead of overly pessimistic.
Source: The Standard
It's all about "how much you made when you were right" & "how little you lost when you were wrong"