‘Hold’ call amid fog
Market correction in Hong Kong extended for the seventh straight week until last Friday and strategists are united in calls to “hold cash”, given that uncertainty is thickening ahead of August economic data from the Chinese mainland and the US Federal Reserve meeting in mid-September.
The local benchmark Hang Seng Index (HSI) fell 3.57 percent or 772 points during the four trading days last week to settle at 20,841.61 at close last Friday. The local stock benchmark, heading south for seven weeks in a row, has pared more than 26 percent since reaching a seven-year high of 28,444 on April 27 this year.
Hang Seng China Enterprises Index, which tracks Hong Konglisted mainland companies, sank 5.94 percent or 579 points last week to close at 9,169.59 last Friday.
Calling market performance “weak and disappointing” given relatively stable external factors, Will Leung Chun-fai, head of Hong Kong and Greater China investment strategy at Standard Chartered Bank, said he expects a better week ahead.
“Market sentiment could revive on further clarity of the timing of the first (US) interest rate hike, after the latest US labor market data is released over the weekend. Early next week, we should expect new market consensus on whether the Fed (US Federal Reserve) will kick off interest normalization in September. If rate hike expectations could ease for the time being, the stock market will see a rebound,” Leung told China Daily.
Data from the US Bureau of Labor Statistics last Friday were lower than previous estimations. The bureau posted a net gain of 173,000 nonfarm new jobs in August, compared with a 215,000 headcount rise in July.
Previously, a Reuters survey suggested market estimation of increase in payrolls by 220,000, while economists polled by MarketWatch pointed to 213,000 new jobs. Meanwhile, all eyes are also on the China National Bureau of Statistics, which is due to release August data for the consumer price index and producer price index on Thursday.
Peter Pak, executive director of BOCI Securities Ltd, cautioned investors that the best strategy is to sit on the fence with cash, given that market sentiment is vulnerable and the direction unclear ahead of the Federal Open Market Committee meeting scheduled from Sept 16 to 17.
“Valuation has been low in Hong Kong, but there is also considerable uncertainty,” Pak said. “Investors have been underweighting high-beta sectors, such as brokerages, developers and commodityrelated stocks, and favoring defensive choices.”
“If the Fed hints at a delay in lifting interest rates, the local market is due to rebound, to roughly 22,000 to 23,000 level. It would hardly go back to the previous high in April, as a lot of investors have been locked in since the collapse in early July. Furthermore, the ratehike cycle, even if it is postponed to the year-end, is still on the horizon anyway.”