Well, that was fast. Bulls wrested control from the bears in Hong Kong just three months after the Black Swan coronavirus sent the Hang Seng Index tumbling and unnerved investors. The low was hit on March 23, a further slide from where the benchmark technically entered bear territory on March 13, about two months after the coronavirus outbreak in mainland China first came to the world’s attention. By last Monday, the benchmark had climbed 20 per cent from its trough, propelling it back into a bull market. Fear of missing out has elbowed aside the fear of being in the market. Now what? Hong Kong and emerging markets are at the start of a very powerful – and long – bull market, argues Mark Galasiewski, Asian-Pacific financial forecast editor at Elliott Wave, who studies historical charts and other technical tools to predict market movements. “It will continue to surprise most observers with its persistence and duration because that’s what powerful bull markets do,” he said, contending that this bull market “will continue for many years.” But Richard Peterson, a behavioural economist and author of Inside the Investor’s Brain , warns investors to watch out for the positive sentiment driving bull markets to shift from rational optimism to the irrational exuberance stage that creates market bubbles – and breaks investors’ hearts. “Investors who trade now should understand that it is likely to end in tears for most of them,” Peterson says. So how long will this Hong Kong bull run last? For now, at least, mainland money is flooding into the Hong Kong stock market. Every trading day from May 29 to Friday, a net inflow of money has poured from the mainland into the city’s stocks through the Stock Connect trading link, according to data collected by AAStocks.com, including a whopping HK$11.19 billion (US$1.44 billion) on July 6 alone “Money is coming in from the north like lightning,” said Louis Tse, managing director of VC Asset Management. In addition, a rush of listings in the city is boosting investor sentiment. Friday saw one of the busiest days of initial public offerings ever, with seven companies debuting. Two soared at least 150 per cent . A total of 24 companies are expected to debut this month. New economy stars NetEase and JD.com have already followed e-commerce giant Alibaba in establishing a secondary listing in Hong Kong. And other US-listed Chinese companies are expected to stampede in. Meanwhile, investors are signalling lots of optimism. The Hang Seng Index marked its second straight week of gains on Friday, putting it on track for back-to-back monthly gains. The benchmark has fallen in four of the six full months so far in 2020, and it is down nearly 9 per cent for the year. By one key measurement – the price-to-earnings ratio – the Hang Seng Index is still cheap, at 11.2 compared with 22.5 for the S&P 500 in the US, making the Hang Seng Index very attractive. But VC Asset’s Tse worries because the pandemic is uncharted territory, making forecasting about the likely length of this bull market especially difficult. “Covid-19 is so scary because we haven’t seen this before,” Tse said. “Not in our era, and even our ancestors haven’t experienced anything like this. We don’t know what this Covid-19 is, and it’s so difficult to find a vaccine … The market cannot handle all this fear and uncertainty.” In fact, “uncertainty” in the world, according to a gauge that measures the appearance of the word in writings by economists, is at a two-decade high. Behavioural economist Peterson warns that the coronavirus is fuelling risk taking, as people work at home and use their smartphones to trade stocks for entertainment through cheap online brokerages. These are ingredients for a stock market bubble – one likely to pop, he says. When? Investors should watch for signs of changes in the fundamental drivers of the bubble, he said, such as the Chinese government stepping in to temper stock investing – some early signs of which were seen last week. Such moves could affect Hong Kong stocks through a decrease in southbound buying on the Stock Connect and weaker China companies, which make up more than half of the market capitalisation of the Hang Seng Index. Another warning sign would be governments around the globe turning off the liquidity taps, he said. Some notable big stock market runs in Hong Kong include: In February 2016, the Hang Seng fell to a low of 18,319.58 points after the meltdown in mainland China’s markets. From there, it then rose more than 80 per cent over the next two years. Meanwhile, the Sars epidemic, which killed a comparatively small 700 people worldwide compared to Covid-19, which has killed more than 560,000, was followed by a tremendous bull market in Hong Kong. From the low in April 2003, the market went on a tear, rising nearly more than 65 per cent by February 2004. After falling more than 20 per cent over a few months into May, the benchmark went on to rise more than 180 per cent over the next four and a half years. Of course, bears are always rested and ready to come out of hibernation when bulls get exhausted. In the Hong Kong market’s new bull run, new economy stocks are tremendously outperforming old economy stocks, such as Hong Kong property stocks, Alex Wong, director of Ample Capital points out. Wong and other analysts say investors need to watch out for three big risks: inflation shooting up; rock-bottom interest rates rising; and a sharp correction in new economy stocks, which could be triggered if the market’s mindset changes to the belief the world will normalise back to the pre-pandemic days. “The bull run in new economy stocks will stop if we go back to the situation before the coronavirus, which will lead to a fund flow switch, or if the outlook for interest and inflation changes. If inflation speeds up, then the stock market will fall,” Wong said. Wong, who has been a big booster of new economy stocks like Tencent and Alibaba, now sounds more cautious, saying that the risk of a correction has risen because new economy stocks have gone up so much and so quickly. Still, he advises having a stake in this sector. Favourites of analysts tracked by Bloomberg include Tencent, up 46 per cent this year, Alibaba , the owner of the South China Morning Post, up 23 per cent; Meituan Dianping, up 104 per cent; Ping An Good Doctor, up 122 per cent; and Alibaba Health Information Technology, up 147 per cent. Pharmaceuticals and health care stocks remain good choices, says Gordon Tsui, chairman of the Hong Kong Securities Association, advising investors to skip bank stocks. HSBC, for example, is down 40 per cent year to date. “Besides new economy stocks, pharmaceuticals and health care stocks will be pursued by the market in hopes that new drugs may be developed to control the virus,” Tsui said. In contrast, old economy stocks have fallen. The worst hit this year on the Hang Seng Index are Swire Pacific Limited, a real estate-to-aviation-to-industrial conglomerate, down 40 per cent and barely worse than second-place HSBC, with a number of Hong Kong property companies in the top 20 worst performers, Bloomberg data shows. “New economy stocks are a bit too hot right now, so there will be some correction,” warns Stanley Chan, director of research at Emperor Securities. “There might be some rotational buying, and investors may start to trade mainland securities firm stocks, insurance stocks or mainland developer stocks .” Stephen Innes, global market strategist at AxiCorp, expects the bull market to have strong legs – at least for the near term. “This is unlike anything before,” Innes said. “It was not a gradual slowdown. It was, one day the bubble popped, the next day it re-inflated … That is why its so difficult to forecast because it is very much dependent on consumer behaviours. And who knows how long the lingering effects of Covid-19 will weight on the fear factor.” Although analysts may disagree on how long this newborn bull will run, they agree on one thing: investors need to watch closely to avoid being gored when the bull inevitably changes direction and heads down to bear territory.