The high of 2015 market rally is a strong resistance
The Hang Seng Index (HSI) opened at 28,626 points last Friday (6 October), a level that was higher than the high of the 2015 market rally.
However, 28,626 points also turned out to be its intraday high. Following which, a large number of arbitrage goods appeared and the HSI started falling.
Despite it rising back up by 0.28% at the end of the day, its level was still lower than the high of the 2015 rally. The high of the 2015 rally is indeed a very strong resistance line.
The bull market this year is very different from that of 2015 too—in 2015, the market was driven up by frenzied speculation without any kind of resistance.
But now, investors face multiple levels of resistance, and it requires a lot of patience to wait for the market to overcome them.
HSI pushed up by Tencent’s soaring share price
Individual stocks faced even stronger resistance. In fact, it was reported in Apple Daily last week that there were large amounts of stocks whose prices were at their lows.
Thus, I reckon that the HSI had gained its momentum from only a few soaring stocks.
Among which, the most important one is none other than Tencent Holdings Ltd (700.HK). Without the soaring growth of its share price, the Hang Seng would not have been able to reach 28,000 points.
The growth of Tencent’s share price was driven by funds on an international scale. Similarly, the prices of tech stocks in the US have been rising repeatedly.
Encountering multiple lines of resistance is not necessarily a bad thing. Even though the 2015 rally was a time marked by investors’ mania, the excitement and euphoria only lasted for a very short while.
As the market plunged sharply afterwards, many retail investors were unable to “escape” the stock market in time, and their funds are locked in up till this date.
This also explains why third, fourth, or even fifth-tier stocks failed to be driven up by speculation even though the HSI had broken above the 28,000 points level.
The reason being short-term speculators are currently only focusing on second-tier stocks with market caps that go up to tens of billions of Hong Kong dollars.
Hong Kong property prices beginning to stabilise
Dr Jacinto Tong, a well-known figure in the Hong Kong real estate industry pointed out that the latest Centa-City Leading Index was 160.02, which was even lower than 160.26 as at 30 June, and this should be a signal for investors to be alert.
After Carrie Lam Cheng Yuet-Ngor had taken office as the Chief Executive of Hong Kong, the Centa-City Leading Index no longer kept rising without falling, and instead, it registered both ups and downs.
Property prices have stabilised now. Primary residential properties remained hot-selling, but property developers no longer dare to charge in too aggressively.
Some property developers even use the phrase “below market price” as their sales slogan.
Furthermore, those who want to buy properties would have to pay close attention to the new policies put forth by Hong Kong’s new Chief Executive.
We should listen closely to her policy address on 11 October to know what methods she would use to increase housing supply.
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.
This article was translated from Chinese to English by Chen Xushuang. Click here to read the original article.