Maybank KE HK: More downside, do not bottom fish

Maybank Kim Eng (Hong Kong) Benny Wong gave a bearish view of Hong Kong. whereas Maybank Kim Eng (Singapore) presented that current market in Singapore maybe a buying opportunity (I posted this yesterday

Here is the article on Hong Kong market:

Recent correction in the HK market is really triggered by (1) increasing inflation expectation, (2) rising bond yield, (3) bottoming USD, (4) correction in global equities.

We advise investors to stay alert and do not try to bottom fishing at this stage.

Latest data show that inflation is returning. With US tax cut and low unemployment rate, people will spend more, this will induce the long-forgotten inflation. Also, jump in commodity prices and supply constraints will further worsen inflation.

Rising bond yield is reflecting higher inflation expectation, US 10-year bond yield rose from 2.4% in early Dec to currently 2.707%. Many bond traders expect it will break 3% soon and this will be negative to equity. Just a reminder, the 10-year yield was at 4.5%-5% before the 2008 financial tsunami.

The USD index hit a recent low on 1 Feb at 88.671 and is now at 89.554. The USD index lost 10.2% in 2017 and it seemed a bit excessive. Now the trend may reverse given (1) Fed may raise interest rate faster than expected, (2) US corporates are repatriating funds back to the USA. A rising USD is negative for Asian stock markets.

As for HK, results season will commerce in March and many large corporates are expected to report stellar 2017 profit, but good news is fully reflected and bad news is dominating presently.

HSI has risen almost 5,000 points in the past two months, market is vulnerable to consolidation. In addition, southbound trades will likely slow down during the Chinese New Year period.

Judging from the historical pattern in the past 2 decades, once a correction begins, HSI will probably decline 10-20% from peak, namely HSI may go down to 26,560-29,880. Investors should remain patient before trying to bottom fishing.

  • I'm a remisier with Maybank Kim Eng, and as a bonds and REITs investor myself, I guide my clients to build resilient bonds and REITs portfolios. If you like to be guided, please open a trading account to become my client; It's free!
  • WealthLions is my blog where I journal my trading ideas and share my opinions about the markets. If you like to be kept posted of my new blog posts and events, please subscribe to my mailing list. No spam, I promise.