Dr Chan: Selling Pressure Is Building Up

On 10 January 2018, the Hang Seng Index (HSI) set the record, rising for the 12th consecutive day in the longest uninterrupted streak in history.

The HSI has been rising since 21 December 2017, and has shot up by 1,839 points. On the first trading day in 2018, HSI rose above 30,000 points once again, cementing my optimism.

On the other hand, there were many who were wary of the HSI’s rapid rise, and felt that they should wait for a correction before entering the market. Unfortunately, the correction never came. Eventually, these investors who had been waiting on the sidelines, jumped and chased the market at high prices. As a result, this “fear of missing out” has significantly driven the HSI upwards.

Rise Of Global Equities Partly Attributed to Donald Trump

The good performance of the HSI in 2017 and in the start of 2018, can be partly attributed to the Trump effect.

US stocks had been on a frenzied rally since Donald Trump won the US presidential election in 8 November 2016. Till this date, the Dow Jones Industrial Average has risen by 38.43 percent – the best performance the market has seen for every new president since the end of World War Two.

A few days ago, when the Dow rose above 25,000 points for the first time, Trump became the first US President to comment on the stock market, even announcing that the Dow would rise by another 20 percent!

As US stocks skyrocketed, China A shares which had been languishing due to the government’s clampdown on financial leverage, performed decently too. Like the HSI, the Shanghai Composite Index also displayed an impressive performance, rising for the ninth consecutive day on 10 January.

Signs That Selling Pressure Is Getting Stronger

However, risks were apparent too—the Shanghai Composite Index fell at a point in time on 10 January, causing the HSI to decline rapidly from its high of 31,267 points, nearly ruining the chances of a 12-day winning streak.

Indeed, selling pressures have grown immensely and the market has grown wary. For one, stock darling Tencent Holdings (700.HK) bucked the broad market trend and closed lower on 10 January.

Nonetheless, bullish sentiments are still present as Tencent’s closing price was still slightly higher when the Hang Seng had first broken above the 30,000-point level last year.

With all that said, speculative activities have been the greatest contributor to the recent rise of the HSI. Stocks that were previously lagging behind in terms of valuations have seen significant gains in the latest run-up.

Lagging stocks that showed the strongest speculation-driven performances include oil companies China Petroleum & Chemical Corp (386.HK) and PetroChina Co (857.HK).

Despite the fact that international oil prices have reached its three-year high, the stock performance of the two abovementioned oil companies had been rather lackluster for the greater part of last year. I was puzzled then and could not explain why this was so. As such, I believe their rise was something that long-term investors have been longing for.