Hong Kong investors confused about the outlook
Posted on 28 July 2009 with no comments from readers
Hong Kong based investors are confused about the outlook for investments and many of the brightest are sat on piles of cash and gold. They do not see good value in stock markets and property yields locally are too low to make real estate attractive.
All the action is over the border in mainland China where stock markets have almost doubled since recent lows, and indeed the Hang Seng Index has just topped 20,000, up from 12,000 in the depths of the crisis.
Bubble trouble
However, there is fear of a repeat of the 2007 Chinese stock market bubble, similarly fuelled by loose lending and the top characterized by hugely oversubscribed IPOs. The upside, on the other hand, looks limited given the obvious problems in the global economy going forward.
Why risk your money, goes the argument, if all the good news is in the price and perhaps then some. Cash in dollars is actually a short on the stock market as the dollar will rally in a crash.
Gold is a reluctant hold. There is a feeling that gold’s day will come, though not quite yet. You could easily imagine a stock market correction from the current record rally but that marking a top for the dollar and US bonds.
Thereafter inflation, real and imagined, could well fuel up a retail investor shift into gold. It is typical of a major price spike that serious investors begin to lose heart just as the mass investor comes on board.
Gold
All it needs now is a trigger and the buyers will come in droves. A whiff of inflation in the air perhaps? Or a stock market crash this fall might scare small investors into precious metals.
Hong Kong investors are tending to also hold onto their property as a hedge against inflation, and just because – despite 12 years of negative prices – they feel safe with bricks-and-mortar. I wonder if they are right.
The risk is surely that inflation and market forces counter the artificially low interest rate levels that we see today, and that would raise the cost of borrowing and depress house prices further. The net yield of around four per cent on local property is still rather low and vulnerable to higher interest rates which would come direct from the USA thanks to the dollar peg.
