The Hong Kong market fell almost 800 points on Thursday and Friday, or 2 percent last week, as the China and US markets dropped heavily before the trade talks reached any agreement.
The drop in the A-share market was due to the benchmark index surging very quickly recently and being under much pressure for a correction. It is also expected that the Beijing government will not be willing to see the market repeat the 2015 A-share market turbulence and want the index to correct as soon as possible.
Two major news events triggered the Shanghai and Shenzhen stock markets’ drop of almost 4 percent and 3 percent on Friday.
Citic Securities advised clients to sell the shares of People’s Insurance Company (Group) of China in its report, saying they are “significantly overvalued” and could decline more than 54 percent over the next year.
Meanwhile, the Guangdong branch of the China Securities Regulatory Commission told mainland brokerage firms it is are closely monitoring over-the-counter stock lending activities.
The last article in this column said that Yi Huiman, the new chairman of the CSRC, is cautious on the gray market and believes that any measures for cooling the overheating market are of benefit to the market’s long-term development.
Many investors worry that the 2015 A-share market turbulence will be repeated this year.
However, I believe history will not simply repeat itself as investors are very cautious about any early signals of a market crash or disaster after experiencing the 2015 market turbulence.
Even assuming that the recent bull run in A shares mirrors what happened in 2015, the Shanghai Composite Inxex that barely reached 3,000 points should not set off the alarm.
The US market has also corrected after surging.
The European Central Bank changed tack on its tightening plan on Thursday and offered banks a new round of cheap loans.
Meanwhile, there are no any signals to show that the US economy is in deterioration.
The Federal Reserve has not changed its dovish attitude on rate increases and it is expected that the reserve will announce the timetable of balance sheet reduction at this month’s meeting.
I think that there is not much room for a big market drop if the China and US trade talks continue.
The Hong Kong Monetary Authority said it sold US dollars equivalent to HK$1.5 billion to keep the local exchange rate at above HK$7.85 per dollar on Saturday.
I don’t agree with some comment that it represents foreign companies are selling Hong Kong assets.
The rate of the Hong Kong dollar has not been in line with the US dollar rate for a long time and carry trade must be done under the linked exchange rate system, especially as the rate gap between the HKD and USD is the largest since the 2008 financial tsunami.
I think investors should not worry too much if the dollar touches the weak side of convertibility.
Although the Hong Kong stock market dropped 550 points on Friday, the price of some shares, such as Wharf Real Estate Investment (1997), is still rising.
The performance of the company is better than market expectations while it says the sales amount at its shopping mall, Harbour City, in the first quarter of this year surged almost 40 percent on last year.
Wharf’s mainland shopping malls also recorded a good result. That shows investors could pay more attention to good-quality local retail stocks, such as Chow Tai Fook (1299).
In the meantime, President Xi Jinping will travel to Europe on March 22 and visit Italy.
On Friday, Italian Prime Minister Giuseppe Conte said that they support China’s Belt and Road infrastructure plan and that it could offer some development opportunities to Italy and European countries. He is looking to sign a framework deal with President Xi.
Italy does not follow the US in warning of corporate troubles with China, which shows it is more concerned with economic development than political issues. I expected more corporate projects between Italy and China will be launched.
The only Italian company which was listed in Hong Kong that I can remember is Prada (1913).
Prada’s share price performance has not been good for a long time and investors should watch to see whether Xi’s trip will stimulate its share price.