Stock markets in Hong Kong and Shanghai are jumping up and down like a kid on a trampoline.
For the last few days, Hong Kong stocks have taken something of a beating, returning to pre-New Year’s Day levels. Mainland stocks, however, were all the rage on Tuesday, led by China Life’s spectacular A-share listing.
During the first day of business after Christmas and again in the New Year, the Hong Kong Stock Exchange climbed more than 400 points while the Hang Seng Index topped the psychological 20,000 barrier.
On Thursday, the Shanghai Stock Exchange jumped up almost 6% and then dove back to close only 1.5% higher. On Friday, the Hang Seng index continued a drop that started Thursday but, as these words were written, seemed to be hanging in just above the 20,000 mark.
The old story about the Rockefeller scion that pulled out of the market after his shoe-shine boy gave him some stock tips is on everybody’s lips.
Taxi drivers and migrant domestic workers in Hong Kong are now investing on margin, borrowing money to buy stocks and get in on oversubscribed IPOs, one market watcher said.
Meanhiwle, analysts repeat time and again that there is too much liquidity. And, time and again, they follow that up with reassurances that fundamentals are still strong and getting stronger.
Yet, price-to-earnings ratios in Chinese insurance companies’ Hong Kong H-shares, typically an investor favorite, are at stratospheric levels. The stocks may be significantly overvalued but they are not the only ones – telecoms are getting up there and the once undervalued Chinese banks are following suit.
“People in Hong Kong have short memories,” said one acquaintance who follows the markets. “They don’t remember what it’s like to be in a crash.”
Many a trader got a nice surprise on January 2 and many a trader cashed in on January 3, causing the Thursday drop in Hong Kong. Friday was underlined by another drop and a slump in the US caused every market in the region to slump with it. Tuesday, however, things seemed to be back to the green across the region, except in Hong Kong, which started out on a high and closed in a low.
Still, the ride is great for now but, sooner or later, something will happen to bring everybody to their senses. New currency regulations in Thailand? A shock in Mumbai? An unexpected decision in Shanghai? God forbid, an earthquake in Tokyo?
Those who can ride the crash or slump will nervously laugh it off.
Investors who look at buying on margin as a sign of manhood will feel the pain as will the much less capitalized taxi drivers and domestic workers who have caught stock fever and are betting everything they have, and some stuff they don’t, on a fickle and often intractable animal.