Yesterday, during intraday trading, the Hang Seng Index climbed to a record high. But it was a half-hearted sort of record, reflecting investors' ambivalent feelings towards the market.
The session started bullishly as investors shrugged off concerns about the US sub-prime mortgage market and pushed the Hang Seng to a new record high at 22,975.81. The buoyant mood did not last. Worries soon took over and the index dropped back to finish a shade below Tuesday's record close.
The market's schizophrenic performance illustrates neatly how investors are in two minds about the prospects for equities in the second half of the year.
Viewed from one angle, the outlook appears rosy. Although the Hang Seng has risen an impressive 170 per cent from its Sars-struck low in April 2003, valuations are relatively moderate by recent historical standards.
Priced at about 17 times earnings, the Hang Seng is valued well above the dismal days of early 2003, when it slumped to just 13 times earnings. On the other hand, valuations remain below those seen during the first part of the post-Sars rally, when they climbed above 20 times earnings. That implies they could go higher still from current levels.
It is true that H shares are valued a lot more richly at about 23 times earnings. But despite recent gains they remain at a substantial discount - typically between 20 and 60 per cent - below their mainland peers.
