Securities markets review
In 2013, the Hong Kong market posted a slight gain despite the rallies in major overseas markets. Uncertainties remained over the precise pace of the exit of quantitative easing programme in the US and the economic outlook of mainland China. Looking forward, the market may face the following risks and uncertainties which investors should be cautious about:
- Reversal of accumulated gains: During 2013, major stock markets rose to their record highs. Any disappointing news about economic performance or policy changes may trigger selloffs, and worries about a possible downturn may add volatility to the market.
- Worries about the tapering of Fed stimulus and the US fiscal debt problem: It is widely anticipated that a dovish monetary policy might continue in the medium term. However, investors remain cautious about the precise pace for the Fed’s tapering. The debt ceiling problem was only temporarily resolved and further debates in coming months may affect market volatility.
- Movements of capital flows: The global market rally was supported by abundant liquidity given loose monetary policies in major markets. As the local market has recorded capital inflows after the start of the quantitative easing of the US, upon a tapering of the stimulus, capital inflows may recede or even reverse. Possible reversals of fund flows from the Asian markets may pose a contagion impact on the local stock market as well. As an open market, the Hong Kong stock market is prone to risks of volatile capital flows.
- Global macro risks: Despite signs of improving economic data, the outlook for global economic growth remains uncertain. In Europe, unemployment rates and debt ratios remain high, and there are worries about deflation risks. Sovereign ratings are still susceptible to downgrades. In Japan, economic recovery remains fragile despite continuous supportive policies. On the Mainland, investors are also concerned about the slowdown in economic growth.
The Hong Kong stock market performance has referenced both the performance of the US and the Mainland markets. Looking forward, as the economic outlook of mainland China remains uncertain, and the US Fed will taper its stimulus measures, these developments may weigh on the Hong Kong market.