Lu Yuren – There is a shadow of stagflation in Hong Kong｜Financial High Tea

Local social restrictions have been eased, and people have flocked to spend outside the streets. One of their feelings is the rise in prices. Many restaurants have announced price increases, indicating that inflation has begun to emerge. Worrying that the United States will vigorously raise interest rates to suppress inflation, the US stock market has plunged, and the Hang Seng Index will cross the 20,000-point level again on Monday.

The US inflation recorded a year-on-year increase of 8.5%, which touched the nerves of the market. The Reserve Bank hinted that it will increase by 0.5% next month, and the bond interest rate has soared to a level of nearly 3%. The interest rate of this magnitude has not appeared for a long time. Will it rise again? It depends on future data to decide. In the past, economists believed that the inflation rate must be above 2% in order to suppress the price increase, but this argument has long since been invalidated by the Fed’s addiction to water. In the past few years, the US interest rate has not even caught up with inflation, let alone higher than inflation.
A-shares affected by the epidemic, the Hang Seng Index crosses the 20,000 mark again

The latest U.S. inflation figure rose by 8.5% year-on-year, but this was caused by the Russian-Ukrainian war and logistics chaos. The money sent by the U.S. government last year was one of the accelerants. If the interest rate is to increase by 2% according to the inflation figure, the interest rate will soar to double digits, and it will be scary to hear it. Far below double-digit numbers, the shock wave of short-term interest rate hikes will hit the investment market. The Fed considers the intensity of interest rate hikes. The most basic thing is the price increase. At the same time, it also considers the economic endurance. The performance of the stock market is the most specific indicator. According to this inference, if the US stock market can support, the Fed will have the conditions to raise interest rates to fight inflation. There are signs that prices have fallen, which is why the stock market has been under pressure recently. But if U.S. stocks fall too far, the Fed could be on a tear.

As for the mainland, as the epidemic in Shanghai is still out of control, and the renminbi began to fall sharply last week, it also deepened the pressure on the mainland stock market and also dragged down the Hong Kong stock market.
Affected by the fifth wave of the epidemic, it is difficult to do business locally, but merchants still have to forcefully increase prices, because of the rising cost, there is no profitable business to do without it. Citizens’ income has decreased, and their purchasing power has been damaged. There is already a shadow of stagflation in the local area. The situation in foreign countries may be better than that in Hong Kong, but the general direction is similar. From daily life, you can experience that the investment market is blowing headwinds. If the wind direction is to change, it is necessary to wait for price increases to stabilize, freight rates to fall, and fuel and commodity raw materials prices to fall. When inflation is raging, the purchasing power of holding cash will be eroded, and you will become a loser. However, if you are not allowed to invest reluctantly, the loss will be more obvious. The way to protect yourself is to limit your bets and keep your market sense.

With the U.S. stock market plummeting and the epidemic in Beijing, the opening of the market has been bad. The Hang Seng Index fell to nearly 20,000 points in the morning market, but the three major A-share indexes fell by more than 5%, and the Shanghai Stock Exchange fell below the 3,000 level in July 2020. For the first time since, it closed down more than 15% to 2928 points; the Shenzhen Component Index closed 6% to 10379 points.

Hong Kong stocks followed the mainland’s decline in the afternoon and expanded. It once inserted 854 points, fell below the 20,000 mark, hit a low of 19,784 points, and closed at 19,869 points, down 769 points. The KSE Index closed at 3,806 points, down 194 points, or nearly 5%; the HSCEI closed at 6,684 points, down 287 points.

Only 4 blue-chip stocks recorded gains. Power Assets (006) rose 1.1% to close at HK$53.45, being the best performing blue-chip stock; CLP Holdings (002) rose 1% to close at HK$77.65; Link (823) rose 0.07%. Closed at 68 yuan. Haidilao (6862) plunged 16% to close at 12.92 yuan, being the worst performing blue-chip stock; Xinyi Solar (968) fell nearly 9% to close at 10.92 yuan; Anta Sports (2020) also fell 8% to close at 85 yuan; Branch Industrial (669) fell 7.7% to close at 104.1 yuan.
Both old and new economic stocks are not running

The market drop in April was comprehensive, and both old and new economic stocks were not running! Oil prices fell, with three barrels set to fall. PetroChina (857) fell more than 4% to close at 3.74 yuan; Sinopec (386) also fell 3% to close at 3.86 yuan; upstream CNOOC (883) plunged 7% to close at 10.2 yuan. Financial stocks fell equally in both China and Hong Kong. With negative news, China Merchants Bank (3968), the former president of China Merchants Bank (3968), confirmed that he had been investigated for serious violations of laws and regulations. China Merchants Bank’s share price plummeted 10% to close at 46.7 yuan. zero. Multinational bank HSBC (005) fell nearly 5% to close at 51.65 yuan; BOC Hong Kong (2388) fell 1.35% to close at 29.1 yuan; AIA (1299) fell 4% to close at 75 yuan.

New economic stocks continued to be under pressure. In order to curb online violence, the Central Cyberspace Administration launched the “Qinglang Special Governance Action”, focusing on 18 websites and platforms with great social influence, including Sina Weibo, Douyin, Baidu Tieba and Zhihu ( 2390), etc., Zhihu fell another 8% to close at 22.5 yuan, continuing to hit a new low for listing. Alibaba (9988) fell 5.5% to close at 81.85 yuan; Tencent (700) fell 4% to close at 327.4 yuan; Meituan (3690) fell 2% to close at 138.6 yuan; Jingdong (9618) fell 3.65% to close at 200.8 yuan; Xiaomi (1810) hit a low of 10.82 yuan, a 52-week low, and closed down 6% to close at 10.92 yuan; Kuaishou (1024) fell 7% to close at 55.3 yuan. In addition, the mainland battery sector has fluctuated sharply recently. Stock Wang Ningde delayed the release of results. Ganfeng Lithium (1772) plunged 12% to close at 79.1 yuan.

Under the turmoil in the investment market, internal media reported that the central bank convened a meeting of commercial banks and a number of real estate companies, involving real estate mergers and acquisitions and other issues. The main participants in the meeting were Shimao Group (813), Zhongliang Holdings (2772), and Evergrande Group. (3333) and other 12 housing companies.

According to the content of the meeting out of the Internet, the compliance requirements for 12 real estate enterprises’ “four certificates are not complete” projects, projects involving mergers and acquisitions loans to replace land transfer fees, etc. have been relaxed; the overdue credit can be extended after credit enhancement; development loans are required to do their best Support real estate enterprises, but funds must be closed for management. At present, asset management companies (AMCs) have a strong willingness to undertake such business. It seems that the central government is becoming more active in solving the dilemma of housing enterprises, so as to avoid chain negative effects on the macro economy.
Lu Yuren