Hang Seng gains could be just a bear market rally
The local market this month has raked in its first sizeable gains since October, leaving investors to wonder whether they will soon be back in the saddle of another bull market - or whether they should still prepare for more bear attacks.
After bottoming out at 21,084.61 on March 17, the Hang Seng Index has steadily made up ground - adding more than 4,000 points up to the close on Friday. But market observers say the Hang Seng Index still needs to show that it can vault a key technical hurdle connected to its 31,638.22 peak on October 30, 2007.
'If it cannot break above the 26,500 level, then it may just be another bear market rebound,' said Ricky Tam Siu-hing, the chairman of the Hong Kong Institute of Investors. 'Most of the time in the past 20 years during a bear market rebound, it has not broken above this level [midway between its recent high and low].'
For the blue-chip index's resurgence to become more than just a bear market rally, investors need to be sure that the dust has settled in overseas markets. Just as negative headlines from the mainland and the United States cooled off the Hang Seng Index, a sustained lifting of the gloom may be enough for it to catch fire once again. Investors will focus much of their attention in the near term on the floundering mainland markets. If A shares cannot sustain the market rally that began last Wednesday, local investors could take it out on their H-share counterparts.
'Right now, a lot of retail investors buying stock in Hong Kong are buying H shares,' Mr Tam said. 'That means that Hong Kong stock is highly related to A shares.'