The People’s Bank of China (PBOC)’s reserve requirement ratio (RRR) cut proved to be powerful indeed—within a short time, many mainland China bank shares reached their 52-week high.

China is now having its National Day “Golden Week” holiday, and the jams on the road are pretty powerful too.

But one thing we learn is that China really has many cars.

Coincidentally, Geely Automobile Holdings Ltd (175.HK) reached its 52-week high as well.

It’s amazing how Geely Automobile could rise to a new high so quickly after it had seen a significant fall in its share price on 22 September 2017.

Retail investors still sitting on the fence

Several second-tier mainland property stocks had fallen drastically for the past two weeks.

I had previously advised investors to follow the moving averages and reduce their holdings.

Even though we saw some stocks hit a record high in one shot on Tuesday, there are also stocks that have recently plunged and are unable to reach new highs.

The reason is that retail investors did not dare to “chase” those stocks, while institutional investors were focused on the speculation of Hang Seng Index (HSI) constituent stocks.

They hope to drive the HSI above 28,000 points again so that retail investors would feel more confident.

But the actual fact is that it’s the fifth time that the Hang Seng broken above 28,000 points, and for the last four times, it had simply fallen back down shortly after.

Thus, retail investors are unlikely to regain their enthusiasm so quickly.

The share price of Hong Kong Exchanges & Clearing Ltd (388.HK) best reflects the mentality of retail investors.

During the 2015 rally, the share price of Hong Kong Exchanges & Clearing Ltd (HKEX) was about HK$300.

But as at Wednesday (4 October), its share price has yet to break above HK$233.2, which is also this year’s high. This shows that retail investors are very much still sitting on the sidelines to watch.

Why is that so? The reason is that the stock market this year rises too quickly to “chase”, and falls too quickly to “abandon ship”, making it hard for speculation.

The frequent ups and downs also make investors very uncomfortable.

I believe that retail investors would only call it a bull market and have enough confidence to enter when the HSI breaks above its 2015 high of 28,588 points.

Still hard for junk stocks to recover lost ground

That being said, even if the HSI breaks above the high of its 2015 rally, junk stocks whose prices were driven up during the 2015 rally are still unlikely to recover lost ground.

Similarly, retail investors who are holding onto a large number of stocks that they had bought during the 2015 rally are unlikely to regain their confidence.

If junk stocks were to rise back to their 2015 high, I’d advise everyone to be careful.

When that happens, there would certainly be many who think that the HSI would rise above 40,000 points.

On 11 October, HKSAR Chief Executive Carrie Lam Cheng Yuet-Ngor will deliver her first Policy Address.

Investors can look out for opportunities to speculate on Hong Kong real estate stocks then.

Dr Chan Yan Chong is a renowned investment expert with decades of experience in investing. He’s guided retail investors through the various financial crises and stock market corrections and crashes. Dr Chan is speaking at our upcoming Shares Investment Conference 2H2017《股林大会》(Chinese event) on 4 November 2016 along with Buck Tan Mu Kun, Goh Mou Lih and Liu Jin Shu, who are all regular 958fm guests. Click on the button below to learn more.


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This article was translated from Chinese to English by Chen Xushuang. Click here to read the original article.