Market watcher Jiang Youheng.
Photo: Sinafinance

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

IT MIGHT BE time to stop fixating on the rearview mirror and what hazards are approaching and instead hold one’s head a bit higher and drive ahead with confidence.

Well, at least as far as Hong Kong shareholders are concerned.

In fact, the bulk of the bad news – both potential and real, and originating from home as well as abroad – seems to have been already factored into the market.

Therefore, there’s seemingly nowhere to go but up.

Let’s not forget the importance of H-shares to Hong Kong’s benchmark Hang Seng Index.

You’ll recall that H-shares are those Mainland China-incorporated enterprises selling shares on the local bourse.

The combined capitalization of H-shares on the Hong Kong Stock Exchange is significant, to say the least.

The legendary statement by the chief of General Motors years ago is somewhat instructive and applicable here: “What’s good for GM is good for America.”

Though historians often dispute whether the pronouncement was ever made as such, it could also be used to describe the close interdependency of the Chinese economy (read: H-shares, and their co-listed A-share brethren) and the Hong Kong Stock Exchange.

Shaky Column? Greece has been the EU economy closest to full default so far.  Photo: visitgreece.gr

“What’s good for China is good for the Hang Seng...” could also be argued to hold water today, if anyone with a high enough profile were to bother to make such a statement.

And what of the PRC?

First of all, it is likely that both the Mainland Chinese economy and the country’s listed enterprises (both at home and abroad), have more or less digested all the doom and gloom in Europe, North America and Greater China and are now ready to begin a sure but steady upward climb.

In other words, the significant corrections of the past several weeks in Shanghai, Shenzhen as well as here in Hong Kong, should serve as evidence enough that investors have effectively thrown the trash to the curb in a protracted Spring cleaning.

Now, with a clean slate, Summer is approaching and things should begin to get decidedly warmer and sunnier.

Greek Tragedy?

The big test for this theory is snapping at our heels in the form of the elections in Greece this coming weekend.

As we are all too painfully aware, Greece has been teetering on the brink of insolvency for several months and the elections are seen as a referendum on both the voting public’s level of tolerance for painful austerity measures as well as a possible precursor to the Hellenic state leaving the Eurozone altogether and returning the drachma to national currency status.

Half year performance of Hong Kong's Hang Seng Index

While the investing world breathed a collective sigh of relief last week after the EU’s No.4 economy Spain was given a 100 billion yuan bank bailout, the upcoming reaction of global markets – especially A-shares and H-shares – will go far to predicting how the Hang Seng Index will fare in the second half of this year.

Confusing matters somewhat is the growing chorus of analysts who say that Greece’s departure from the EU might not be a Greek tragedy after all, all things considered.

Regardless, the corrections in the local markets have rendered both China and Hong Kong better able to reabsorb any possible outcome to the results in Athens this weekend.

In addition, let’s not forget that the rumor meter is whirring into action as an increasing percentage of market watchers are betting that another rate move – whether lower interest rates or a cut in the reserve requirement ratio – is on the near term horizon.

Therefore, with all these potentially important actions and decisions on the horizon, Hong Kong investors should take some comfort in knowing that the corrections this Spring have made the market more resilient to any forthcoming shocks.

See also:

In Praise Of China’s Retail Investors

Whither China Shares?

CHINA SHARES: Market Watchers All Over Map

FOREIGN TASTES: What QFIIs Are Buying In China

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