Stock market works in mysterious ways
Updated: 2014-08-15 04:31
By Jony Lam(HK Edition)
The world's four largest accounting firms - Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers Hong Kong - collectively issued a statement published in a local newspaper on June 27, saying that if "Occupy Central" were to proceed, it could hurt the attractiveness of Hong Kong as a location for multinational corporations and investors. I took a short position on the Hang Seng Index, and waited for doom.
A few days later, in the morning of July 2, hundreds of protesters were arrested during an overnight sit-in. Among them, a total of 25 were later released on bail, while 486 others were given warnings before being released. The scale of arrests was unprecedented, suggesting that the accounting firms' fears are more real than ever: The police were taking a harder line; protesters were getting more determined and fearless. And this was not even "Occupy" proper. The Big Four were giving sound investment advice.
To my disappointment, the Hang Seng Index rose 1.6 percent to reach 23,549.62, the biggest increase since early May. Among the Hang Seng sub-indexes, the Hang Seng HK 35 bounced the most, gaining 2.2 percent. This index is made up of the 35 biggest Hong Kong-listed companies that mainly don't do business with the mainland. By comparison, the Hang Seng China 50 index, which tracks the largest mainland companies listed in Hong Kong, was up only 0.9 percent. So the optimism has less to do with the mainland's manufacturing data or economic stimulus programs.
Some attributed the stock market's performance to the business world's relief that the July 1 demonstrations and overnight sit-ins were peaceful. In other words, investors seemed to be seeing the glass half full. But it was more than that; they seemed to be seeing the glass through a crystal ball as well. Demand for the Hong Kong dollar has been growing days before July 1. For the first time since December 2012, Hong Kong Monetary Authority (HKMA) stepped in on July 1 to protect the peg as the Hong Kong dollar traded close to the upper limit of the defined range. That was before the sit-ins.
At first, analysts told us demand for Hong Kong dollar grew because of initial public offerings, mergers and acquisitions and dividend payment. Later, we knew a lot of the money went into the stock market. Capital inflows remained strong throughout July, and the HKMA had to intervene in the currency markets 17 times to protect the peg.
Later, when the esteemed HSBC downgraded its projections for Hong Kong leveling the blame, also, at "Occupy", I became a bit more skeptical. After a day, the bank almost retracted its analysis entirely. The stock market continues to be bullish.
It is often difficult to decide between money and words, and faith.
The more fundamental question is: Does Hong Kong need to be a "good" place for investors to like it? Similarly, does a "good" company make more profit and bring a better return to investors? It all depends on the questions of "how do you define good" and "good to whom".
Our government listed the MTR Corporation (MTRC) on the stock market in 1999 out of the belief that this would make it a more efficient operator. Today, every Hongkonger would agree that the service of the MTRC has become less efficient. It has not done enough to cope with the increasing number of passengers. All the major projects are far behind schedule. Severe service disruptions happen every few days. Senior management lied to the government. And yet (or precisely because of these, depending on your philosophical outlook on things), the share price of MTRC is on a steady climb since February.
I know exactly how the MTRC makes profits. I purchased the new "City Saver" ticket last month, thinking it was a bargain, only ended up paying more. "Designed for medium- to long-distance cross-harbor commuters," the ticket is "valid for 40 single journeys in 30 consecutive days for just HK$400!" The only people who can benefit from these very restrictive terms are those who live on one side of the harbor and work on the other side, travel to work every day on the MTR, and go home directly after work every day. Meet your friends for dinner away from an MTR station a few nights within the "30 consecutive days", and MTRC rips you off.
The person in MTRC who came up with this idea deserves a fat bonus. And if stocks work in mysterious ways, Hongkonger will also behave in mysterious ways. Meanwhile, my short position remains open, and I am keeping my fingers crossed.
The author is a current affairs commentator.
(HK Edition 08/15/2014 page9)