Be directed by dollarMonday, December 20, 2010
I was surprised to see the Hang Seng Index falling to under 22,700 points recently. The benchmark may drop to 22,200 before the current wave of adjustment is completed.
If the fall was related to Europe's debt crisis or the credit rating of Ireland and Spain, then theoretically European stock markets and the euro should have been affected more severely. Instead the impact was mild.
If we point the finger at China, then how can one explain that the Shanghai Composite Index is hovering above 2,800 points?
Therefore, the only possible explanation is the role played by hot funds. This can be reflected by how the USD/HKD pair recently rose again to 7.77.
In the past year the Hong Kong stock market and the USD/HKD trend often took opposite extremes. When USD/HKD rose - that is, the local currency weakened - the Hong Kong stock market declined.
But when USD/HKD retreated - that is, the local dollar strengthened - in turn the local market improved.
Hence, it is better to use the direction of USD/HKD as a point of reference.
The outflow of funds from the local stock market strengthened the USD/HKD, therefore the HSI has plunged by more than 1,000 points.
I believe this has to do with end- of-year activities and should not be a cause for concern.
Yet the factors attributed to year- end activities and reduced fund flows have already caused the Hong Kong stock market to fluctuate in the short term by 5 percent.
Next year, whether massive hot funds flow in or out, I believe short- term fluctuations in local equities will vary more than 10 percent.
In the face of a high turnover of hot funds, the SAR government is still adopting a laissez-faire attitude to maintain Hong Kong's status as a financial hub.
But investors must not sit idle. We must analyze the impact of fund flows on our city and adapt.
http://www.thestandard.com.hk/news_deta ... 01220&fc=1
It's all about "how much you made when you were right" & "how little you lost when you were wrong"