Now is not the right time to buy Hong Kong stocks, says one expert, who predicts the benchmark Hang Seng Index will fall below 18,000 in the near future, given global economic uncertainties.
Louis Tse, Director at VC Brokerage, says the index’s rebound to the 20,000 level on Monday morning, following gains on Wall Street, is likely to be temporary.
Tse says a scenario of slowing growth in the West and a slowdown in mainland China has not been priced into stocks.
“I mean, those scenarios haven't been played into Hong Kong's market, and actually it's not 100 percent discounted or 50 percent discounted.”
According to Tse, China’s slowing growth will hurt Hong Kong’s economy. To add to that, Japan’s catastrophic earthquake and tsunami in March, have also weighed on Hong Kong’s GDP, which was down 0.5 percent in the second quarter over the previous three months.
“It hurt Hong Kong's imports and exports, which is evident by Cathay Pacific's cargo loading being down by about 4 percent.” Tse says.
Tse believes liquidity is flowing out of Hong Kong and into safe havens elsewhere such as the Japanese yen and U.S. Treasurys.
A drop to 18,000 would still put the Hang Seng a long way from its low of 11,000 during the global financial crisis in October 2008.
Tse believes that this time around, Hong Kong faces the risk of stagflation because of slowing growth and high inflation. Hong Kong’s inflation problem has been especially aggravated by the Hong Kong dollar peg with the U.S. dollar, which has led to an increase in the cost of imports and extremely low interest rates.