Let's make hay while the sun shinesby Andrew Wong
One of the six forecasts I mentioned last week was that the Hang Seng Index would rise by more than 20 percent, which is basically the expectation that Hong Kong's stocks will hit another record high this year.
Why I am so optimistic about this?
Hong Kong stocks stumbled and were trapped in a bear market in 2019 because of several factors. But in the end, the Hang Seng Index rose by nearly 10 percent, which shows that
major investors lacked opportunities to sell off their assets and that Hong Kong did not witness an outflow of capital.
This is one reason why I am optimistic about Hong Kong stocks.
Another reason is that in the face of economic downward pressures and severe debt problems, the central government in Beijing will continue to roll out monetary easing and economic stimulus, which will also boost Hong Kong stocks.
Indeed, on the first day of 2020, the People's Bank of China promptly announced an across-the-board 0.5 percentage point cut in the reserve requirement ratio, freeing up 800 billion yuan (HK$893 billion) for the banking system.
While the market believed that there was limited stimulus for Hong Kong stocks, the Hang Seng Index jumped by more than 350 points on the first trading day of this year. Indeed, 800 billion yuan offers limited economic support since analysts estimate that
local government debt in the mainland alone is as high as 41.8 trillion yuan while the value of bonds which are to mature in the next two years is as high as 3 trillion yuan.And since the return on assets (ROA) for state-owned enterprises is lower than the average lending rates of mainland banks, the debt problems of local bonds and state-owned enterprises can't not be effectively resolved by a comprehensive drop of 0.5 percent of the RRR.
Also, the bond woes of mainland corporations are more severe than local government and state-owned enterprises.
Business tycoon and Alibaba founder Jack Ma recently offered an insight into the level of corporate debt in the mainland.
He said that he had received five calls in a single day from friends to borrow money last month while also revealing that in one week, 10 friends were trying to sell their properties to get out of difficulties.
This shows that China's corporate bond problem is very serious because there are very few people who have access to Ma's private phone number in the mainland and even fewer whom Ma would be willing to accept phone calls from.
These must have been people of a certain stature who could pick up the phone and call Ma in the hope that the billionaire would reach out and help them.
So if what Ma said was true, then there must have been
five super rich people in financial distress as well as
ten tycoons who could save themselves but were also starting to get into trouble.Therefore, it is believed that both the PBOC and the central government won't just stop with a 0.5 percent cut to save the day, and more economic stimulus measures are in the pipeline.
It is believed in the first half of the year the PBOC will again lower the comprehensive rate between 0.5 to 1 percentage point, and we might also see a cut in interest rates by 0.5 percentage points.
Ultimately, all these efforts to stimulate the economy and loosen monetary policy may not be able to save the weak economy in China because it is not just China but the global economy which is facing a severe challenge that may be difficult to surmount.
So I remain a bit skeptical on about how effective the central government's economic stimulus policy will be.
If that be the case, why are we still looking forward to 2020 if the situation is so dire?
Well, let's look back at how Hong Kong fared in 2007. At the time, the US debt crisis was breaking out but the Hang Seng Index was propelled by the vision of "through-train" share trading with the mainland and soared from 20,000 to 32,000 points, which was a rise of more than 60 percent.
So why can't the market now dream of a 20 percent rise because of central government policy? Of course, if Hong Kong stocks do hit new highs, it may be the kiss of death, but why not enjoy the good times in the first half of 2020 before worrying about the crisis in the second?
Source: The Standard
http://www.thestandard.com.hk/section-n ... 0106&sid=2
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
