In the past two weeks, the author has proposed 6 possible financial “forecasts” or situations in 2020
This week, I will focus on the remaining 4 items that involve stock and property market trends.
Heng specified years repeatedly over a wide range
Looking back on the environment in 2019, the main theme of the investment market, especially the stock market, is to develop around the Sino-US trade war. In fact, the trade talks and the relationship between the two countries are like fog and flowers, good times and bad times, and Hong Kong stocks (and many other emerging markets) have repeatedly changed in this “big climate” and “danced up and down.”
From the end of 2018 to the beginning of 2019, it was reported that the China-US trade talks were about to reach an agreement. At the time, global stock markets including Hong Kong stocks had already been oversold at the time. Therefore, the relevant good news has rebounded significantly (short positions). It has surpassed 20% in just over 3 months and reached 30280 points (if there is no accident, this should be the 2019 high)!
However, the Sino-U.S. Trade talks have a lot of good news. U.S. President Trump has imposed additional tariffs on Chinese imports, which has led to a half-year uncertainty phase in the progress of the negotiations. The trend of Hong Kong stocks (and multiple global stock markets) is either weak or soft. All levels down. The Hang Seng Index slipped to a low similar to the beginning of the year (24899 points). However, entering the fourth quarter, China-US trade talks dawned, and Hong Kong stocks rebounded sharply. It can be seen that the trend of the stock market in the past year, especially in Hong Kong and emerging markets, has basically been robbed by Sino-US trade relations.
The good news is that with China and the United States reaching the first phase of the agreement and the central bank’s active “water release”, the market risk appetite has indeed changed fundamentally. The risk appetite index compiled from 17 types of risk appetite sensitive assets recently Reversing a downward trend below the top [Figure 1], the upward breakthrough momentum appeared, reflecting that investors’ interest in risk assets has increased significantly, which is conducive to the continued development of Hong Kong stocks.
The bad news is that the second and even subsequent negotiations between China and the United States will be more difficult, because the issues involved are more sensitive and complex, and the game between the two countries will be endless in the coming year, and as in the past year, it will bring shocks to Hong Kong stocks from time to time. . This is the big climate that Hong Kong stocks will face in 2020.
As for the microclimate, I believe it is dominated by two countervailing forces. On the one hand, social turmoil and the downward pressure on the local economy are still huge (although there is a chance for the external environment to stabilize), which will continue to plague Hong Kong stocks in the coming year. On the other hand, the performance of the Hang Seng Index over the past year compared with the major global stock markets is a major factor that is positive for Hong Kong stocks. According to the EJFQ cycle-adjusted price-earnings ratio (CAPE), the current level of the Hang Seng Index is only 11.2 times, and the valuation is exceptionally cheap [Figure 2]. According to the statistics of the past 40 years, the valuation has fallen to such a low level, and the HSI tends to be 80% in the following year. Opportunity recorded an increase.
In short, the attractive (cheap) valuation, coupled with the first-phase trade agreement between China and the United States, has triggered an increase in overall market risk appetite, and the central bank has continued to “water release”, which will boost Hong Kong stocks in the coming year. However, the continued deterioration of macroeconomic fundamentals, coupled with the uncertainty and financial crisis expected from the new round of Sino-US trade talks (see the Japan column on December 5 for details), are likely to bring shocks to the market and curb Hong Kong stocks rose.
Therefore, it is expected that the performance of the Hang Seng Index will be abnormally repeated in 2020, rising and falling within a wide range between 23,000 and 29,000 points.
Eight, U.S. stocks have broken space, but may lose in the second half of the year
It should not be difficult for investors to find that the impact of the trade war on US stocks in 2019 is relatively mild. In the second and third quarters, the trade war is heating up again. The S & P 500 index has repeatedly repeated only between 2800 and 3000 points. There are no back-to-early lows as measured by the HSI or MSCI Emerging Markets Index. At the end of the third quarter and the fourth quarter, U.S. stocks also re-initiated the “water release” action of purchasing (short) bonds by the Federal Reserve Board (to a certain extent, equivalent to QE). With the help of the good news of the trade talks, the major indexes have been repeatedly created. A new record high.
Looking ahead to 2020, as the Fed will continue to QE (water release) in the short term, it is not appropriate to prematurely underestimate the trend of U.S. stocks, but the next year (especially in the second half of the year) is likely to face a number of challenges, which may eventually make its trend underperform Major stock markets.
The long-term relative strength of the US stock market after the financial tsunami has been clarified. Of course, it has a lot to do with the wave of QE of the Federal Reserve. In short, as long as the Federal Reserve continues to release water or maintains a relatively loose monetary policy, US stocks’ performance will rise. Of course, from 2018 to the first half of 2019, the Federal Reserve Board’s scale-down (QT) action did not cause huge selling pressure on the stock market. It is believed that a large number of U.S. companies under the tax reform have repatriated overseas funds for repurchase or mergers and acquisitions, offsetting QT’s US stock Impact.
In any case, it should be noted that, because the favorable effect of tax cuts on stimulating U.S. stocks is almost over, if the Federal Reserve Board commented earlier, the short-term bond purchase action will continue until mid-2020, and it is expected that U.S. stocks will perform in the second half of the year. Become inferior. In addition, the continued relative strength of US stocks over the years has caused the ratio of MSCI US and MSCI emerging markets index (hereinafter referred to as the stock market ratio) to rise to a more than 10-year high [Figure 3]; the share of the US stock market in the global stock market also created a bubble in 2001. The subsequent high reached 62.9%, reflecting that the US stock market is relatively overbought compared to the non-US stock market.
In fact, from a valuation perspective, the CAPE of US stocks has climbed to 33.2 times (as of the end of September), which is more than 1.5 standard deviations from the median of the past 50 years, which is also higher than the peak of 32.6 times before the Great Depression of 1929. . According to the analysis of technical trends, the index indicates that the current level is higher than the two standard deviations of the long-term rising channel regression line from 2009 to present [Figure 4], showing that this “old cow” who has been running for more than 10 years has “run well”; Later in the second half of next year, we may have the opportunity to hold our breath first, which will cause the US stock market to underperform many stock markets throughout the year.
9. Emerging market stocks perform better
Looking back over the past year, the trend of the MSCI Emerging Market Index is very similar to that of the Hong Kong stock market, both of which have been “dancing low” due to changes in the Sino-US trade talks.
Looking forward to 2020, as the downward pressure on the global economy eases or even stabilizes with Sino-US trade relations, coupled with the expected U.S. dollar to peak later in the coming year and a rebound in commodity prices, etc. (see December 5 and 12 for details) Column), are beneficial to the overall emerging market stock market trend. Of course, the long-term relative strength of U.S. stocks, and the apparently relatively expensive stock prices, will gradually allow funds to flow out of U.S. stocks (especially in the second half of next year), and switch to other stock markets, especially emerging markets, which will indirectly make the latter perform better in the coming year.
Ten, the property market measures may reduce spicy but property prices continue to bottom
In the past year, Hong Kong’s second-hand property prices rose first and then returned. The full-year performance in 2019 is expected to be flat, that is, the property prices have returned to their original shape. Looking forward to 2020, Hong Kong’s macroeconomic environment will continue to deteriorate, coupled with the impact of the local protest movement on home ownership confidence, which will indirectly lead to further price flooring in the coming year.
Some analysts believe that the weakening of the local economy may not have much impact on property prices, but the macroeconomic situation has not completely decoupled from property prices. It can be seen from the trend of the unemployment rate and second-hand property prices in Hong Kong over the years that most of the trends show a significant inverse relationship, that is, the unemployment rate rises (economic disparity) and property prices fall; vice versa [Figure 5]. As the chances of the local economy bottoming further in the coming year are very high, property prices are unlikely to place high hopes on the relatively weak economic performance (although it is expected that the SAR Government / HKMA will have the opportunity to further reduce spicyness in the coming year).
From the perspective of the long-term market width of the 128 second-hand housing estates whose 10-week line price is higher than the 50-week line ratio, it can be seen that the property price in the past year has been in a bear run, and the long-term market width has fallen below the 50% strength-weakness boundary. [Figure 6], reflecting the weak trend of property prices in Hong Kong.
After the confirmation of the long-term market width of the property market, the adjustment of property prices often takes as long as 9 months or more. It is expected that property prices will bottom out repeatedly in 2020, and the annual decline may reach 10%.