Friday, August 17, 2007

Should Hang Seng index always follow U.S. market?

Hong Kong's Hang Seng Index always follows U.S. market, a very easy way for traders to judge its daily up and down. So did today. Now the problem is not only on how the suprime mortgage problem will be solved, but on if the investors' confidence will be rebuilt. The mortgage crisis should just directly affect property and banking stocks. However, funds have been selling out their portfolios because of large amount of redeeming, which as a result leading to the stock falling down in all sectors.

Are investors in Hong Kong too nervous now? I believe so. The market, with over half of the market value from mainland firms, is not the same as the U.S. market. For example, housing and related industry generates over one quarter of U.S.' GDP, while China is still dominated by the prosperous manufacturing industry. Also, the liquidity is totally different: U.S. and European banks have to ask capital injection from central banks, while Chinese banks have enough cash and deposits on hand to meet the loan demand. Just saw one piece quoted Yi Xianrong, a Chinese academic, saying China is even worse than U.S., while I really don't think so. China's personal loan market is still developing very fast from infant, compared to a mature market like U.S. . So Hong Kong investors and traders should realize this huge difference, and react differently. If Hong Kong really wants to build itself as an international finance center, it should always have its own stand. Stock market is one example.

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