World Economy

Is Hong Kong Headed for Another Bull Cycle?

Is Hong Kong Headed for Another Bull Cycle?Is Hong Kong Headed for Another Bull Cycle?

Hong Kong stocks picked up more than 2,000 points last month and are up more than 1% this year.

Is another bull market coming? Should investors take profit or increase their investment first?

Daily market turnover rose above HK$70 billion ($9 billion) on Tuesday but many investors doubt the rally is sustainable, EJInsight reported.

Hong Kong and China funds attracted more than HK$5 billion last week, the highest in the past four months. Capital has been flowing into Hong Kong equities and property amid a strong Hong Kong dollar.

Meanwhile, mainland investors have been plowing capital into Hong Kong due to a weaker yuan.

China’s economic growth is likely to bottom out at 6.7% in the second quarter, above market expectations for 6.5% growth.

Real interest rates remain high, with inflation at just under 2%, giving Beijing plenty of room to cut interest rates. China held back from monetary stimulus last year for fear of stoking yuan depreciation and causing a massive capital outflow.

China’s foreign exchange reserves plunged more than $800 billion, putting Hong Kong and mainland stock markets under pressure. But things have changed.

Global markets are focused on Brexit and the Chinese yuan has secretly lost about 7% in the past 12 months. That is set to benefit Chinese exporters and related sectors.

Will the yuan continue to weaken? How much further will it fall?

There is limited downside for the yuan before the G20 meeting. If Beijing unveils monetary stimulus measures after the G20 meeting, the yuan might fall another 3%.

That would help reduce China’s high financing costs and ease the pressure of an economic slowdown.

The Chinese central bank might take action in August.