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Wednesday, June 12, 2019, 16:52
Outside the box
By Peter Liang
Wednesday, June 12, 2019, 16:52 By Peter Liang

The Hong Kong stock market usually is not politically sensitive. But when a real estate developer elected to pay the hundreds of millions of dollars in penalty to back out of a land deal, citing political uncertainties, investors took notice.

With investors’ concerns further heightened by the mass demonstration outside government headquarters, the benchmark index tumbled more than 400 points in morning trading. Unsurprisingly, property stocks led the fall that also dragged down banks and finance related shares.

Analysts tried to play down the political factor, arguing that the latest events had merely magnified a normal market correction from the sharp surge in share prices on investors’ expectations of interest rate cuts. That notion was brought into question by at least one major US investment bank which said that it didn’t expect any rate cuts in 2019.6.12

The Dow retreated on Tuesday after a 6-day rally, yielding a mere 14 points while some economists also expressed their doubts about the wisdom of lowering interest rates at this time.

Their views stood in sharp contrast to that of US President Donald Trump who berated the Federal Reserve in a recent tweet for undermining the country’s competitiveness by keeping interest rates at levels considerably higher than those of many other developed economies and pursuing what he denounced as a quantitative tightening monetary policy.

Of course, US interest rate policy, important as it is to Hong Kong whose currency is pegged to that of the US, isn’t the only benchmark. Investors are also closely watching the Chinese mainland government actions in pump priming the economy that is facing challenges from the trade dispute with the United States.

In addition to fiscal stimulants, centering on tax cuts, the Chinese central bank is widely expected to further lowering banks reserve requirements to inject fresh liquidity into the financial system. A part of that money is expected to flow to Hong Kong, giving a boost to the asset markets.

It’s not clear how the controversy surrounding the proposed amendment to the extradition bill is going to play out as it is tabled for second reading at the Legislature. But underlying fundamentals of the stock market are unlikely to change much from what they are now.  

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