Global uncertainty means stability still a long way off despite rally
Yesterday's stock rally should not be taken as a sign of the market's return to stability as it remains vulnerable to uncertainties in Europe, the United States and the mainland, warn brokers and investment strategists.
The Hang Seng Index rose more than 900 points, or 5.67 per cent, to close at 17,172.28 yesterday as investors welcomed euro-zone policymakers' commitment to inject liquidity into the banking system.
John Tang, chief strategist and executive director of UBS, said investors should sell when the HSI reached 19,000 as the market could head down again because of the uncertainties associated with Beijing's policies regarding the property market and money supply.
'China is a policy-driven economy,' Tang said. 'It's not only about the economy. It's about government policies. If the government is really determined to burst the property bubble, it will not relax its credit-tightening policy until there is a significant reduction in prices.'
He warned that the mainland and Hong Kong stock markets could plunge if mainland property prices dropped.
Tang also expressed concern about the ability of the European Financial Stability Facility to help facilitate an 'orderly default' of Greece, and stabilise the European banking sector.
The European Central Bank last night resisted calls to cut interest rates, leaving the rate for its main refinancing operations unchanged at 1.5 per cent. The ECB would look for 'other tools' to contain and solve the sovereign debt crisis, president Jean-Claude Trichet said.
In the US, a survey showed companies created just 91,000 jobs last month, which did not bode well for an unemployment report due today. The country has lost almost nine million jobs since the financial crisis.
AMTD Financial Planning general manager Kenny Tang Sing-hing said the ECB's move to leave interest rates unchanged was unlikely to trigger another plunge in Hong Kong and mainland stocks, as the market was not expecting any cuts anyway.
Concerns about a so-called hard landing for the Chinese economy and the uncertainties surrounding the leadership changes in Beijing next year, however, would continue to cast a shadow on the Hong Kong market, he said.
Tang said he expected the HSI to hover between 15,000 and 20,000 points for the rest of the year. But he said stock valuations were attractive and it could be a good time to buy for investors looking at the medium term. The quarterly JP Morgan Investor Confidence Index released yesterday showed local investors were in a bearish mood. The index fell from 118 in June to 110 in September.
For the 502 retail investors who were surveyed, their top three concerns were a property bubble, a stock market crash in Hong Kong, and the debt crisis in Europe.
JPMorgan market strategist Grace Tam said the risk appetite of global investors had reached a 30-year-low, citing findings from Credit Suisse. She said she expected a rebound as stock valuations became increasingly attractive.
SHK Finance research head Alvin Cheng said any such rebound would be gradual and slow. He said investors should reduce their holdings of stocks in the retail sector, as valuations were comparatively high despite a possible slowdown in consumer spending that stems from slower growth on the mainland.
The commerce and industry sub-sector of the HSI is trading at a price-to-earnings (PE) ratio of 9.96, compared with the index's overall PE ratio, which stands at 9.38. It is also higher than the PE ratios of the finance and property sub-sectors.