Singapore and Hong Kong stock markets reached a trough in late January and early February.
Both showed quite a good rebound in early March, before the rally slowed down, causing some investors to worry if the rebound is near its end.
Then, US Federal Reserve Chairwoman Janet Yellen hinted at a slower pace of rate hikes, reigniting the rally.
Yellen May Make History by Prolonging 7-Year Bull Run
Since reaching bottom in March 2009, US stock markets have rebounded and entered a bull market that has lasted for more than seven years by now.While some find it hard to believe, it seems that the bull market still has some strength to move up further from what we are seeing from the markets.
While some find it hard to believe, it seems that the bull market still has some strength to move up further from what we are seeing from the markets.
The general market is guessing if the US bull market would end its run soon. If the Dow Jones Index can hit a new high, Yellen would be the person who leaves her name in history for creating this unbelievably prolonged bull run.
Compared to the US market, stock prices in Singapore and Hong Kong are considerably cheap. Therefore, as long as the US stock market is still doing well, international hot money would soon return to Singapore and Hong Kong.
A Bit of History Behind Hong Kong and China…
Since the spread of the ideology of Hong Kong independence, theories of China’s collapse have also popped up rapidly. It is more than obvious the notion of China’s collapse is feeding support towards Hong Kong’s independence movement.
This is a boost to advocators of Hong Kong independence as previously not much people would really believe in this ideology.
The ideas of the collapse of China, as well as the downfall of the Chinese communist government, are nothing new – they have been popping up every now and then in the past sixty years or so.
The first instance of such idea ever appearing was during the famine which broke out after China’s Great Leap Forward campaign.
Back then, Chiang Kai-shek – who led the Nationalist government to retreat to Taiwan – thought it was an opportunity not to be missed and tried to persuade the US to support him by deploying troops to attack mainland China.
However, top US officials turned down the request as they knew that the famine would probably not be enough to trigger the downfall of the Chinese communist government.
The second time the ideas of China’s collapse and a communist government downfall surfaced was in the years between 1989 and 1991 – when Eastern Europe overturned communist regimes and the Soviet Union dissolved.
“Peaceful transition” was a frequently-quoted term in those years, but everybody was predicting the downfall of the Chinese communist government within two to three years. Today, China has become the second-largest economy in the world.
China Hard Landing Scares Likely to be Exaggerated
To make the notions of a collapse of China and the Chinese communist government more convincing, some individuals are exaggerating the current slowdown in China’s economic growth.
Some opine that China is now stuck in the middle-income trap and predict that when its economy slows down, the Chinese people feeling the pinch would rise up to overthrow the communist government.
But the fact is, despite slower growth, China’s economic growth rate still tops the world. The gross domestic products (GDP) of Beijing and Shanghai have surpassed that of Hong Kong while Shenzhen is also catching up.
Given such economic strength, an economic collapse seems impossible, much less a hard landing.
The Chinese leaders have reiterated that slower growth is now a new norm, and said that this is why Chinese people should “roll their sleeves up” to reform the economy and learn how to be creative.
A slower growth in the economy does not mean that the economy is failing. Chinese leaders are still confident that by 2020 the country’s GDP would be double the level in 2010.
Due to political brawl, some media might be distorting China’s real economic situation. It is advisable that we should have our independent thoughts and judgment when reading reports on the Chinese economy.
As listed companies are about to round up their reports of latest performances, it is time for us to examine their reports and determine our next step.
Some high-performing stocks saw a dip in share prices after the announcement of their financial results, largely due to short-term investors’ taking profit, which presents an opportunity to invest in these stocks at a lower price.
After some profit-taking exercise by the investors, stocks which are doing well are likely to see a rebound soon. Interestingly, some low-performing stocks are seeing a jump in their stock price, indicating that investors see the worse to be likely over or subsiding.
Too Much Money Flooding Markets, But Not Too Sure What to Do with Them
Recently, Singaporeans are starting to feel the slowdown in the economy. Despite this, the government is still reluctant to relax its property cooling measures.
Similarly, the Hong Kong Special Administrative Region government – which almost synchronically introduced cool-down measures in the property market as Singapore did – is showing no signs of backing down from its measures.
This highlights the similarity of both Singapore and Hong Kong markets. Sentiments in both markets are seemingly lukewarm, but monies – without a clear investment direction – are still inundating the markets.
Once the cooling measures are relaxed, property prices are likely to skyrocket again.
Just several years ago, the Chinese government introduced a number of measures to curb property price surge. As those measures started loosening up, Shenzhen’s property prices shot up as much as 50 percent in one year.
As of last week, Shenzhen and Shanghai could not help but re-introduced cooling measures to curb the price surge – again.
The moral of the story is that the world – whether the US, China or Singapore – is full of monies. The rich have so much money – in the sense that they do not know what investment could best protect the value of their money.
Whenever a chance comes by, all the money would pour in and it seems that everything can be punted.
State-Owned Enterprises Reform–Shareholder Diversification a Good Thing?
Another observation is that quite a number of state-owned enterprises (SOEs) are issuing new shares to buy up assets. This is how an SOE becomes the shareholder of another SOE.
For instance, China Vanke Co announced its acquisition of property projects under Shenzhen Metro Group Co. Vanke would issue new shares to Shenzhen Metro to pay consideration, making the latter one of its major shareholders.
Such development might become a new trend which is part of China’s SOEs reformation plan. The Chinese government wishes to see a more diversified shareholder background among SOEs.
Previously, SEOs used to have only one major shareholder, which is usually a department within the government and such arrangements blurred the line between government and businesses.
With a more diversified major shareholder base now, businesses would be conducted in a more objective manner. However, when individuals of different background and interests are placed on the same board, the company is more prone to internal conflicts.
Another possible scenario is that Company A issues new shares to Company B to acquire the latter’s assets, and Company B issues new shares to Company A to acquire assets of company A.
In this case, the companies control the shares of one another – a popular practice among Japanese businesses. This method promises stability but on the other hand, if one of the businesses were to fail, it would cause a negative chain reaction to the other.
Meanwhile, Dr Chan will be sharing more insights about his macro outlook of the economy and what you can do during this time of uncertainty at our upcoming Shares Investment Conference 1H2016. Click here to find out more.