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Monday, July 06, 2020, 14:47
Outside the box
By Peter Liang
Monday, July 06, 2020, 14:47 By Peter Liang

The old adage that the stock market reflects what investors think the economy will be six months down the road is no longer applicable to the Hong Kong market.

Indeed, the disconnect was made starkly obvious on Monday when the benchmark index of Hong Kong stocks surged 875 points, or 3.5 percent, in the morning despite the report of two new local coronavirus infections.

The economy is not looking any better than before, according to the Secretary for Commerce and Economic Development, Edward Yau. In an interview with SCMP published on Monday, Yau warned that Hong Kong could endure further economic hardship with no major recovery on the horizon given the raging coronavirus pandemic.

He added that Hong Kong was further squeezed by the trade war between Washington and Beijing which was reported to be escalating. US President Donald Trump is expected to announce new anti-China trade and investment measures later this week.

“When we talk about heightened China-US tensions, looking back over the last two years, there seems to be no quiet moment between the two big nations,” Yau said at the SCMP interview. “The double whammy of the US-China trade tensions and Covid-19 changed the global economy. I don’t think there will be an easy time in the distant future because trade, services and traveling (pillars of the Hong Kong economy) will all be suffering.”

But investors apparently have other thoughts. Some of them see the heightening trade conflict between the world’s two largest economies as a plus for the Hong Kong stock market because the resulting hostile environment is prompting many mainland enterprises, especially those in the technology sector, to seek secondary listings in Hong Kong.

The expected flood in new listings will, in turn, channel huge amounts of investment funds from around the world to the Hong Kong market. The resulting influx of stable long-term capital could greatly boost turnover on the local bourse and enhance Hong Kong’s status as an international financial center.

The economy could slump further. But what investors care is there is money to be made in stocks.


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