Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance

LIKE A good wine, the ongoing financial and budgetary crises in the EU and US are currently in a “fermentation” stage, said CS Asia Economist Tao Dong.

But this vintage isn’t aging so well, and the fermented result will likely be a heightening of anxiety and crisis as the year drags on, the market watcher said.

In fact, he went so far as to say that the best opportunities to invest in the Hong Kong market this year may have already passed us by.

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Bad Omen? The Kwok Brothers of Sun Hung Kai Properties helped transform the face of Hong Kong. But their recent arrest on corruption charges put a damper on the market.  Photo: SHK


As if that weren’t discouraging enough, he also added that that the EU is likely to disintegrate by some degree sooner rather than later.

Saying he is well aware of the old adage that investors are usually well advised to “Stay in May,” Tao believes that this may best be ignored given the negative sentiment building in markets due to the unresolved financial troubles in the EU, China’s No.1 trading partner.

“The best days of 2012 are likely behind us,” he cautioned.

The risk of the sovereign debt crises reaching a new level of intensity is quite real, and he added that despite the relatively modest selloffs punctuating the first four months of this year, the remainder of the year will likely be much “rockier.”

“There will probably be a lot more market volatility for the rest of 2012.”

And how did the market watcher see the situations overseas?

“The crises in the EU and US are in a fermentation stage of sorts. Since April, Spain and Portugal in particular have seen an erosion of their credit worthiness thanks to deteriorating debt conditions. It looks like they might end up following Greece’s troubles down the same pathway.”

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Better Get Used to It: More volatility is expected in Hong Kong this year



In addition, he said the leadership shakeups in France and Greece over the past week are adding more uncertainty to debt repayment schedules and proposed austerity programs.

“It’s not so much the concrete crises that bring about market instability. Rather, it is far more a factor of the fundamental uncertainty and lack of concerted action to resolve major issues that is at the root of the volatility. 

“The net effect is to distract investors’ attention from actual debt figures and quality and focus instead on the less tangible institution of sentiment, which is deteriorating as we speak.”

He added that geographically, Hong Kong could not be much further away from the two main global regions of financial concern – the EU and the US.

Physical distance, however, was no protection for Hong Kong.

Given the tremendous reliance of Mainland China on its top two markets – the EU and the US – and the inseparable interdependence of Hong Kong’s capital market on the fate of its giant neighbor to the north, what happened abroad had a direct and profound impact on the direction of the Special Administrative Region’s bourse.

He added that given the seemingly intractable sovereign debt crises in the EU, and the vast divide that existed between various member states in terms of their economic health, the breakup of the political and economic union there – and its common currency – was likely to be a reality sooner rather than later.

See also:

HSBC: ‘Bullish’ On China Shares In 2012; Prefers ICBC, CCB, CITIC

BAD TIMING: Quality Scandal Halts China’s Laiyifen IPO

KISSING COUSINS: PRC Market Rise To Carry Hong Kong

SHOW ME THE MONEY: What Happens To SOE Profits In PRC?

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