As hearts warm up, perhaps, it is time to return to stocks

Updated: 2016-07-13 07:50

(HK Edition)

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Expectations of a fresh flood of liquidity have buoyed stock markets around the world. From New York to Hong Kong, investors are returning to equities in force, reversing the dismal market performance in the past few weeks following Britain's shock vote to leave the European Union (EU).

The renewed confidence in global equities stemmed mainly from indications that the EU and Japanese central banks will inject fresh capital into their respective economies to boost growth and prices.

The landslide victory of Japan's ruling Liberal Democratic Party and its allies in parliamentary elections to the Upper House is widely seen as a re-affirmation of the prime minister's reform agenda and expansive monetary policy. Since the elections, the yen has weakened against the US dollar in expectation that the Bank of Japan will further loosen liquidity and cut interest rates.

With the sputtering economic recovery further clouded by Brexit, the EU central bank is seen to have little choice, but to stimulate growth through further monetary easing and interest-rate cuts. Meanwhile, the Bank of England - the UK's central bank - is due to unveil new and more aggressive monetary easing policies on Thursday - a day after former home secretary Theresa May takes over as Britain's new prime minister.

Past experience has led many Hong Kong investors to expect that at least part of the excess liquidity in Japan and Europe will flow as hot money seeking investment opportunities into Hong Kong and other regional markets. Renewed buying interest has pushed the city's benchmark stocks indicator up in the past two trading sessions.

Analysts expect market sentiment to remain upbeat as the all important property sector is showing signs of a recovery after having been in the doldrums in the past year. Average homes prices, which have dropped by up to 20 percent since their peak in mid-2015, are stabilizing. Reversing a year-long downtrend, the Property Price Index had picked up in May and June.

If you're as upbeat about the market as many analysts are, you may want to consider selling some of your low-yielding bonds to invest in stocks. The latest global stocks rally has shown that investors' risk appetite may have changed.

(HK Edition 07/13/2016 page9)