Hemophilic value investors (2)

I used to write a post in the same topic hemophilic value investors back nine months ago. First of all, I make it clear again it is no offense with such heading but just wanted to bring out the fact that the moments when value investors have a good appetite are that when tragedies happen that bring fear, as Buffet puts it when others are fearful be greedy.

While the world major indexes like DJ, FTSE, DAX and Nikkei are still hanging around their relatively high level, HSI has already down 22% from its peak. The reasons are multiple. HSI reached its peak by 2018 January but then it experienced an almost straight fall from February till October sparkled by the trade tension between the U.S. and China. Only when the two bosses of the world's two largest economy met in December in the same year then the meeting brought HSI a short-lived four months rebounce in this year then followed by an on-going plunge amid the worsening relationship between the two since this May compounded with the ever escalating social tension locally due to the anti-extradition bill in the past two months.

Technically HSI has already entered into the bear market. With the view of Elliot Wave Principle, HSI is also in the course of wave C. Unlike the pattern in the textbooks, this wave C could be a tricky one though because Hong Kong is an highly opened market so it is prone to be affected by the overseas markets and the China market as well, amid the local incidents. The ever increasing listing of Chinese companies in the HKEX and their high ratio among the constituency in the HSI renders a dominance on the movement in the Index along the outlook of China economy. Among the overseas markets, the U.S. stock market no doubt has the most impact on the HSI.

These two major drivers are with contradictory impact on the HSI, at least in the year to come. Still being an export-oriented country, China's economy will inevitably be hit under the hindrance of the trade war, so will her stock market be and this is a gravity on the HSI. However, as Trump is doing everything he can to drive up the U.S.'s stock market to facilitate his second term presidency campaign, the DJ and S&P should be staying in the high level, if not to break another record high, at least in 2020. This is a pulling force on the HSI.

While there are upward and downward forces on the HSI in the long run, it seems the local incident plays an even more decisive factor on the HSI at least in the latter half of 2019. The impact of the social tension and the ever increasing frequency on the police-protestors confrontation start to emerge on the economic activities. Stock market and property market, the two thermometers of the well-being of Hong Kong economy, are not immutable. Rumors of capital outflow from the Island went viral indeed. Along with the recent development, Hong Kong is no longer seen as a capital safe heaven, especially to some controversial funds. To add to its woes, the meeting in yesterday in Shenzhen held by the Hong Kong and Macau Affairs Office further brought doubt and worry on the deployment of China soldiers(PLA) in suppressing confrontations as hinted by the quasi spoke persons or messengers after the meeting.

As the anti-extradition bill movement is hijacked by forces with otherwise intention, on the other hand, the lame duck Hong Kong government is handicapped by Beijing on the concession on the five demands raised by the public, confrontation and escalating violence will not go away but just intensify. The deployment of PLA in combating protestors is not the question of whether or not but when. These soldiers are no boy scout nor are they ordinary army which protects their own fellow. People should not forget what they did in a hot summer night 30 years ago in the far northern city. Indeed these soldiers are embedded in the downtown of the Island so people should not be surprised if they are spotted with their tanks in the streets of Hong Kong soil. The nightmare bloodshed haunting for 30 years just comes alive again.

Value investors, are you ready for the feast?