In 2008, the Chinese zodiac cycle kicked off the Year Of The Rat. According to tradition, this marks a time of renewal, protection, and prosperity. Yet, as far as the performance of the major stock averages in and around the People's Republic goes -- share prices have been colder than the winter, frostbiting blizzards blowing into Shanghai.
To wit: Hong Kong's main stock index, the Hang Seng, has plummeted 27% from its record high set on October 20, 2007.
According to the mainstream "experts," however, ALL of that is about to change. As far as they see it, the elusive rodent that has thus far escaped capture is now reaching out for the trap-proof chunk of cheese. Bolstering their case is this breaking news story from a February 26 Financial Times:
Last month, the China Railway Construction Company postponed its Hong Kong initial public offering due to the fact that stocks had jumped track and turned south. Now, the biggest railway builder in China announced plans to set the IPO's wheels back in motion with an early March launch.
"This is a good sign that interest in the Hong Kong stock market is slowly coming back," explains one interested party. The "bottom fishing and bargain hunting will begin because the market's current valuation is quite attractive."
Pardon the expression, but -- I smell a rat.
See, as far as calling the end of the Hang Seng's sell-off, the usual suspects have seen more "bottoms" than a seat cushion. Case in point:
- November 2007: The "fall" in Hong Kong's stock market is "quite reasonable. This was a most welcome pullback. We have got to see this downtrend bottom and take off again after Christmas." (Associated Press)
- After Christmas 2007: "The index is just pausing for a breather…The market still has plenty of liquidity and any correction is seen as an opportunity for people to enter again." (Daily Times)
- Early January ‘08: "The market remains awash with liquidity and fund managers resumed building positions amid the view that the bourses correction phase may have ended." (AP)
The "Bottom" line is: Whether the powers that be pronounced the end of the slide in Hong Kong's shares at a 5% -- or -- 25% drop, their observations were all AFTER the fact.
As for seeing the start of the decline BEFORE prices turned down -- the November 1, 2007 Global Market Perspective had this Hang Seng analysis to offer: "The latest price action [is] exhibiting all the signs of a possible blow-off top in the making. We want to put the parabolic agitation [of the last 2.5 months] into perspective… and allow these markets wide berth for an imminent coming to reality with the law of gravity."
With shares at their lowest level in five months, the February 2008 Global Market Perspective reveals whether the Hong Kong stock market will follow in the spirit of the Rat in the months to come.