Investors have much to ponder. Interest rates remain absurdly low. Hong Kong investors who bought high-yield bonds in record volumes now worry rising interest rates may devalue these assets. Share prices are increasing in Hong Kong and globally, but investors must determine whether or not this is a false rally built on overly expansive central bank policies.
Hong Kong property is another wild card. Prices continue to go up and transaction volumes climb, despite aggressive government cooling measures. Investors have to decide whether interest rate rises, when they do kick in, will finally bring down house prices – confirming government warnings that the market is in bubble territory. Persistent government intervention also means there’s likely a limited upside to an increasingly risky play.
In other words, as we slither into the Year of the Snake, investors face a series of quandaries. It’s a truism to say markets will be volatile in the year ahead. What markets aren’t? And if they slide sideways, does anyone notice? Most folk only pay attention when they’re making or losing money. But then, not making decisions in a market that could turn bullish is as bad as making the wrong ones.
Equity markets have staged a decent rally since the middle of last year, rejuvenating an asset class that many investors had written-off. If you had put money in the stock market in May 2008, you would still be down 10 per cent on your investment, half a decade later.
The MSCI World index rose 12 per cent from November 15, 2012 to the end of January 2013. There is typically a rally at the start of the year, driven by an infusion of retirement funds, but investors have also shown enthusiasm on the stabilising US economy.
“We’re going to see quite a bit of rotation into equities,” Wellian Wiranto, Asia investment strategist at Barclays, says. “They have started the year on a good footing, and we see that continuing.”
