Tuesday, March 19, 2024
 
Columnist
Martin Hennecke

Enjoy the market madness as we edge toward meltdown
 
22/01/2018
 
Hong Kong stocks last week hit a record high and may continue to reach as high as 38,000 points or even a crazy 42,000 points. The short-term adjustment of 1,000 points is possible but it will not affect the long-term trend.

It's not just in Hong Kong. Taiwan's stock market also reached a new high last week. The entire Asian market also is extremely optimistic. After all, it is driven by the weakness of the dollar.

However, whether the cause is the US government lockout or an outflow of Treasury funds, I believe the dollar will only be weak in the first half of the year. As I said last week, when resource prices rise, inflation heats up. Then it will affect the pace of the Federal Reserve interest rate rises and the dollar will also get stronger.

Price rise of resources affects inflation and the influence on the speed of a rise in interest rates takes six to nine months, so temporarily the impact on the stock market is not large. I am confident in the first half of year that the Hang Seng Index will challenge 38,000 to 42,000 points. But the likelihood that the dollar will bottom out in the second half is really unfortunate and Asia Pacific is bound to experience a financial crisis.

In fact, it is a repeat of 1997. It would pay not to get too excited about the record high and ignore the news that the Thai baht has seen abnormal trading. Or that the dollar debt issuance in Asia last year reached US$377 billion (HK$2.94 trillion). With such a large debt the impact of a rising dollar will be difficult to estimate. So it is not surprising that there are funds targeting Asian currencies.

So while you can enjoy the madness of the market, it is also important to understand that we are edging toward a financial crisis.

Andrew Wong Wai-hong is an independent commentator.

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