Hong Kong stocks fell after the Chung Yeung Festival (10th October), followed by US stocks. Yesterday’s Hong Kong stocks fell further as a result.

But at least, there are 17 Hang Seng constituent stocks that rose against the market. This is important as it shows that funds still remain in the market, just moved to other shares. Many falling stocks registered strong rebounds before the close, which implied that large institutional investors have probably shored up their prices before the close.

Why Public Utility Stocks Fell

The stock market fall in the past two days can be explained with various reasons, but none is particularly strong or convincing. Actually, I think the only reason is that large institutional investors are speculating based on upward and downward market movements. As long as they continue selling off shares and futures, other retail investors will naturally get nervous and seek reasons behind the falling prices. Both true and false news will appear in the market too.

Just yesterday, the Hang Seng Index constituent stocks that rose against the market downtrend include: MTR Corporation (0066.HK), CLP Holdings (0002.HK), HK & China Gas (0003.HK). Conventional wisdom has it that public utility stocks act as hedges.

Last week, as the market was pushing up oil stocks, coal stocks and Macau casino stocks, the prices of utility stocks fell. The reason could be that some investors had sold them to chase the former stocks.

That means even the prices of utility stocks are subjected to rise and fall. Funds will flow out of utility stocks when other targets of speculation appear in the stock market, but when the shored up stocks adjust due to pressure, the funds will flow back to utility stocks.

The Ideal Strategy for Retail Investors

Most people will lag a few steps behind market trends, and end up selling low and buying high. Thus, the most ideal strategy is to just hold public utility stocks for the long-term, and patiently collect dividends. As the stock’s price rises with time, so does its dividend, and the stock price gets further pushed up.

Meanwhile, the hedging ability of public utility stocks allows them to outperform the rest of the market as the market goes on a downtrend. You can let it grow gradually and the increase would be significant after a long while.