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Tuesday, February 13, 2018, 16:23
Outside the box
By Peter Liang
Tuesday, February 13, 2018, 16:23 By Peter Liang

Volatility is the name of the Hong Kong stock market game. The share price rebound this morning after the bloodbath of last week was hardly worth a mention in the local media as it could be nothing more than an opportunity for sellers to unload their holdings.

Analysts have cautioned investors against bargain hunting saying that the outlook of the market has remained murky.

Of course, there are no shortage of investors who refused to believe that the party is over. To these diehard, any new economic indicator or reassurance from the authorities of the market health is a sign to buy.

The rebound on Tuesday morning was widely attributed to the firming up of the mainland market, leading some investors to expect the resumption of the inflow of overseas capital. AS a result, the biggest gainers were the H shares of mainland banks which were seen to be oversold in the previous week.

To be sure, the stock market strength is underpinned by strong economic fundamentals. The market looks cheap with an average multiple of about 12 times of projected earnings in 2018. The H share market seems even more attractive at a projected multiple of under 8 times.

Such valuation may seem irresistible. But investors should bear in mind that sudden and large increases in interest rates could have an unpredictable impact on asset prices in an overheated market.

The projected increase in US government budget deficit, in addition to robust economic growth, increased average wage and rising price inflation, is exerting an increasingly strong upward pressure on interest rates. It’s just a matter of time when Hong Kong will have to follow the US in raising its rates.

What has many economists worried most is that the higher cost of borrowing could hit so hard that both the stock market and the property market collapse at the same time. The possibility of this happening may seem remote. But the mere thought of it is sending a chill down the spine of many investors.

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