bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

paywallTypes

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

THE blue chip Hang Seng Index has set more than 10 records in the seven weeks since the June 30 handover of Hong Kong to China.

 Sceptics who feared that prosperity would follow the Royal Yacht Britannia out of Hong Kong harbour so far have been proved wrong.

 Equities have powered to new heights, fuelled by renewed confidence in the SAR's future.

 It is still early days, however, and only the foolish or foolhardy would fail to take account of the potential for local or imported problems.

 Experienced Hong Kong investors welcome the good run but know events can change swiftly and not always for the better.

 They also understand that a key defining aspect of the market is its volatility.

 Hong Kong's fortunes can turn on a Chinese cracker and last week's speculation about new highs has switched rapidly to concerns about falls.

 The property sector - which in market capitalisation terms accounts for more than 50 per cent of the index - led last week's drop because of a rise in SAR interest rates.

 For investors with a view to the medium term and who diversify their interests across a range of holdings - typically investing through a unit or investment trust - the outlook remains encouraging.

 Since January 1995, the market has risen from 6,968 to a record closing high of 16,673 points earlier this month.

 It is a market that can taunt as much as tempt, and investors should brace for the unexpected.

 The United States and China are Hong Kong's biggest trading partners and changes in either economy can be reflected swiftly in the local economy.

 In particular, the Hong Kong dollar is pegged to the US currency and its interest rate movements typically emulate the latest move of the US Federal Reserve.

 A decision at Tuesday's Federal Reserve meeting to raise rates is likely to cause prices to fall while Fed abstaining could set the scene for a new round of record highs.

 The other key external influence is Hong Kong's increasingly symbiotic relationship with China.

 Those bullish about the Hong Kong economy point to the rare situation where China, one of the great emerging markets, is positioned next door to an economy with a fully developed service economy.

 According to Guinness Flight Asia, the principal threats to the Hong Kong stock market are a US equity market collapse, the derailment of China's economic recovery, or Hong Kong's domestic property market overheating.

 Investment manager Lisa Chow said: 'It is a bit scary for us. We have been banking on a 10 per cent or 20 per cent rise for the year and then it comes in a week.

 'I am worried. The market has come up in a very short period of time.

 'When it begins to push up towards 17,000 points the warning bells ring.'  Indocam Asset Management chief executive Ian McEvatt is confident the underlying growth rate will continue despite periods of volatility.

 Mr McEvatt, whose company largely manages European and US investors' funds, said: 'This market is characterised by a moving up in steps - like walking up a staircase.'  He said liquidity from China remained strong and the SAR market continued to reflect the strength of the US economy.

 'The rest of the region is also in the dumps, and Singapore is no longer the region's notional safe harbour.' 



US and mainland fortunes offer litmus test for market