Put away your thinking cap for the time being, just relax!
The best advice for investors in these intriguing times is to take an early Christmas break. Nobody is expecting the market to crash, but some of the latest developments that can have a direct impact on the market are looking scarier by the day.
Since the US Federal Reserve raised interest rates last Friday, the Hong Kong stock market has been mired in a state of listlessness, with investors spooked by the prospect of bigger and more frequent rate hikes next year than earlier expected. Even banks that are supposed to benefit from higher interest rates have taken a beating.
Investors are worried that global banks, including HSBC and Standard Chartered, could be hit by Italy’s looming financial crisis that could destabilize the euro zone, which is already troubled by stagnant economic growth. More threatening is the rise of euro-skeptic populist political parties in some major EU economies, including France, Germany, Holland and Italy.
Closer to home, the bondmarket scandal on the Chinese mainland has raised the question whether it’s just an isolated incident or the tip of the iceberg. The disruption it caused has already created problems for mainland enterprises in raising much needed long-term capital, resulting in possible tightening of liquidity that could wreak havoc on stocks.
Just ahead of Christmas, investment houses will be making forecasts for the coming year. No one in Hong Kong is known to have kept a tally of the accuracy of these yearend projections. Recent studies in the US have shown that assessments by analysts there have been mostly off the mark — by a wide margin in some cases.
While many investment gurus are still bullish about the US stock market’s outlook, some analysts have noted that the euphoria surrounding US President-elect Donald Trump’s professed economic policies is waning. The effectiveness of lowering taxes and increasing government spending to stimulate economic growth is not necessarily assured.
As for Hong Kong, the local economy is not showing any sign of picking up from the slowdown in the past few years. Besides, the threat of a sudden large outflow of capital to the US is real and the decline in exports and retail continues. Most worrisome for investors is the possibility of rapid interestrate hikes to defend the currency peg and staunch capital outflow.
The best thing an investor can do now is to leave all these troubling thoughts behind. Just sit back and relax on a beach elsewhere sipping a cool drink!