Hong Kong market is an open market that couples with China and US market. The so-called fundamentals in Hong Kong are comprised of property, banking and finance, and China concepts. None of these sectors are sound under the anticipated decline on economy. As eventually equity market will follow the economy and not the vice versa, the "rebound" in HSI in recent 2 days cannot last long.
An update on US credit crisis:
Risk Premium (according to figures posted on Bloomberg):
1-month LIBOR: 297 pts (dropped)
3-month LIBOR: 314 pts (dropped)
5-year AAA: 531 pts (risen!)
10-year AAA: 651 pts (risen!!!; now 8.01%!!!)
This is a notable phenomenon: LIBOR drops; AAA finance rate still rises. The bailout only benefits the bank yet the bank does not pass it out to grade AAA financial institutions. Without continuous support, selling of asset will continue. Companies that rely solely on banks may stop worsening on liquidity issue as bank will loan. But, companies that also include institutional investors will find their shares in the market at a low price - even not as bad as last week. Divestment still rolls on. We cannot expect much on the coming market.
An alternate explanation is that banks KNOW their AAA counterparts are in deep holes. These AAA counterparts do not have the muscles to climb out. Under a starving condition, why bother throw a pill of supplement while bank themselves cannot have their crave fulfilled? And afterall, this pill of supplement can only provide vitamins but not calores.
Actually, there can even be a third interpretation: AAA is anything; AAA is nothing. The rather arbitrary announcement of upgrading and downgrading, particularly AFTER corporate quarterly result announcement, inevitably raises our question: what are you guys, S&P, Moody, etc, doing? You do not warn ahead but after? And a grading from AAA to AA+ or even just AA can be changed in ONE NIGHT? This is a REAL CREDIT CRUNCH: not on figures but on TRUST.
Mortgage rates do not change. Yes, no rise; NO DROP.
If we look at the bond yield, they all rise. However, interestingly the prices for bond below 2-year also rose - the reverse of the trend of last Friday. While bond yield rise should mean an outflow of money from bond market to elsewhere, the short-term bond yield and price rise at the same time can also mean the market is still looking for shelter despite the rise of yield.
How about the currency market? USD is rising against EUR again, and JPY is rising against USD, also again. USD drops against GBP though (again according to bloomberg figures).
EUR:USD -> 1.3572
GBP:USD -> 1.7400
USD:JPY -> 101.77
The trend may mean a turn back for USD and JPY. GBP is still stable so far (yes, so far, but at least thank Gordon Brown). Integrating with the above phenomena: credit is tight on financial institutions; demand on bond is still substantial, and easy money like USD and JPY is still not accessible; US credit crisis is far from relaxing, not to mention resolving. If financial instiutions continue their divestment, then the stock market of US will continue to tumble. Meanwhile, property market is still tight judging by the high risk premium on mortgages. Both markets will hammer the derivatives and futures markets, and initiate further losses on and sucks liquidity from banks and financial institutions. Such tide-up will tighten the credit of banks again due to write-off on balance sheet and compliance to accounting principle. The cycle will continue.
So, can we expect a deep V? It can be a deep V, but for sure it is not LV (Long deep-V).
Or, actually I can think of a forth explanation on the rise of AAA rates amidst the fall of LIBOR: helicopter is there. Bernake and Paulson, like the Joker (Jack Nicolson) in Batman 1 (by Tim Burton), will throw as much money on the street as they like. If I were the bank, understanding that there would be a "competitor" with "unlimited" money supply and authority to loan at will (at any rates), why did I drop the rate and bear the risk myself? Particularly I know it cuts really deep?
Just pray that our Jokers will not be like Jack the Joker who spreaded poisonous gas at the same time. Don't forget about the national debt, and the flooding USD.