Time for bargains
Investors who take the Hong Kong press comments on the economy seriously will have many sleepless nights. In the past several weeks, business reports in print and on air have painted a dark picture, quoting investment experts for their prognosis of gloom and doom.
Earlier this week, a mass circulation Chinese-language daily ran a banner headline predicting a property market crash. The report itself was based entirely on one incident in which several home buyers had their down payment forfeited for reneging on contracts to buy apartments in a large development project.
It was not the only example of a seemingly concerted effort to talk down the market. Even some property agents have joined in the chorus for some very selfserving reasons. They are trying to add pressure on the government to remove the tough measures introduced last year to clamp down on excessive speculation that pushed property prices to dizzying levels. The government has said that lifting those restrictions is not on the cards.
The stock market hasn’t been spared by the doomsayers. Earlier, stock commentators sounded repeated warnings about the expected US interest rate hike and its negative impact on global stock markets. Now these same commentators are saying that the US Federal Reserve’s (Fed) decision not to raise interest rates indicates that the global economy is in a worse shape than previously thought. That, of course, is bad for stocks.
As an investor, what are you going to do? You can sell everything you have, stocks and properties, and keep the money in the bank. The better alternative is not to panic because property prices are not going to crash and money can still be made in the stock market. The outflow of capital to the US is modest and liquidity in Hong Kong and on the Chinese mainland has remained plentiful.
After the sell-off in the past weeks, the stock market is ripe for bargain hunting. As mentioned in this column earlier, the shares of Li & Fung were oversold while the company has largely left its problems behind. Its shares rebounded nearly 10 percent last Tuesday on the strength of a bullish report from Bank of America Merrill Lynch.
The more adventurous may take a close look at bank shares, which have been sold down on concerns about their narrowing profit margins that have been squeezed by low interest rates. That is going to change because the Fed is widely expected to raise rates in its next scheduled meeting in December.
Of course, the downside risk of asset investment now is larger than it was a year ago. But look at it this way: Things are just returning to normal. The exceptionally low interest rate and the large inflow of funds that fueled the market boom were exceptional.
Doomsayers may shake their heads, but signs are that things may just be returning to normal.