This time is different! I think… (China and Hong Kong Market)

So… in early 2024, I was lucky to have some spare cash as the big expense I was expecting didn’t come to fruition.

As I was wondering and researching what to invest in, I was convinced that I should investigate a market that is so gloomy that everyone is cursing and swearing about it.

Hong Kong (HK) Market.

Before the rally in late September 2024, the Hang Seng Index (HSI) was trading roughly at the same level as the Lehman Brother’s crash.

I did have some concerns regarding the HK market.

•   HK market may need more time to recover
•   HK’s economy is at the mercy of the Chinese government’s policy
•   The credibility of the HK market’s financial reporting (Annual reports and financial statements)

The gloominess and pessimism of HK market are totally noticeable. When I asked on Reddit (https://www.reddit.com/r/HongKong/comments/1b4ubc7/hk_stocks_recommendation/) about HK market and their choice of company to buy. You really can feel the pessimism about HK market then.

I didn’t stop there. I also asked my usual Whatsapp stock market interest group, and they, too, gave their pessimistic views on it.

The Time To Buy Is When There's Blood In The Streets - Nathan Rothschild

There was blood in the streets in HK when they protested from 2019 to 2020 regarding an amendment to one of the law bills.

But this isn’t and shouldn't be the only reason why I should buy anything in HK market too.

To be frank, their pessimism is warranted, regardless of how they convey their feelings to me.

Yet… I am undeterred. I strongly believe that HK market deserves a good hard look because:

1.       There are still economic activities in HK and China. There are still people buying food, taking transportation, paying bills, and wearing clothes.

2.       Hongkongers are hyper-competitive and hyper-materialistic. They survived under a foreign overlord (United Kingdom), and they will survive under China. I sincerely believe none, no Hongkonger, willing to stay poor and not work hard for a good living. Not without a good damn fight.

Although I believe that their economy will not become zero, I must be prepared that whatever HK-listed company I buy will tank or go down in price even more.

Hence, here is my rough game plan:

·         I try to search for at least 3 companies that I believe will do well even when the economy will do well even when the economy is bad. A moat is so strong that despite a bad economy will still survive and be profitable.

·         I will be more stringent with my criteria. Especially the debt part of the company. Reducing the odds that the company goes bankrupt.

·         I will allocate a small position and prepare for 100% loss.

I managed to find 3 of those companies that satisfy my requirements:

·     Hong Kong Exchange (https://drive.google.com/file/d/1ABlppSPq8mP-EH8tH8CLkdKpNsGefs3t/view?usp=drive_link)

·     MTR (https://drive.google.com/file/d/13IeOCu4Eflmf8Y6IGlA2PJb7_Fi0FB3f/view?usp=drive_link)

·     Yum! China (https://drive.google.com/file/d/1yp8TLJ8PSjhW0-NMHHVCAjn43J_o2EQI/view?usp=drive_link)

I will not explain in detail about these companies. At the time of writing, I am vested in MTR and Yum! China (HK)

Annnnnnd then I carry on with my life.

Fast forward to late September, the People’s Bank of China (PBOC) Governor made an announcement and then China and HK’s markets soared.

Well… I, too, couldn’t believe my eyes when I saw my investment become profitable by a good margin.

But this is where everything becomes… funny…

This time is different! Really!

Memes start flowing on what the Chinese and Hong Kongers are doing. Rushing into open accounts. Many want to capture the bull market and maximize their gains.

This has gone so crazy… When I saw this image, I knew the sentiment in China and HK suddenly became too greedy…

A monk! Open a brokerage account! I am Speechless!

Financial advisers, analysts, Finfluencers, not just Singaporean finfluencers… basically I think everyone (since I am blogging about this, so I am one of them) starts to say something about this China Bull run.

Those who are very mindful, very demure (I don’t know who started this trend, but hey, let me use it), explained what the PBOC Governor means by those actions and what that help.

Some proudly boost how high China/HK share will go and what is his/her target price. (How do they know sia?) and there was one that declare he will eat shit.

Basically, a lot of people, both from the media and the retail investors think that this time is different.

小赌怡情大赌伤身 (Gambling with little stakes may be fun, but gambling with big stakes may bring harm)

Then after the golden holiday week, I expect the market will soar higher, since a lot of people, including a monk, open a brokerage account.

Oh boy… I never thought I would be so wrong.

The Chinese retail investors did manage to join in the stock market… before the market goes down about 30%.

Social media is filled with people venting their frustrations on how much losses they make and how terrible their situation is.

Some claim they mortgage their properties, take up loans, and pour all their life savings into the stock market, thinking that this time is different, and they are going to change their life around.

I am wrong, though profitable still (not sure for how long).
They are wrong and suffer a huge loss.

Why is it different?

Why am I profitable while others are suffering a huge loss?

The simple answer is I bought my investment when the market was extremely pessimistic. When everyone brushed my questions aside and looked down on this idea. It was as if the idea of investing HK shares offended them.

A classic bear market attitude.

But this time is different… because usually, the market had demonstrated it has become profitable. Companies become profitable, dividends become larger, and assets consistently break previous all-time highs, then usually people will start to take more risk and invest in overpriced assets.

Not this time.

Retail investors start to invest and take extreme risks before the market proves itself.

The psychology of the retail investors leaps much more forward before the government and the companies execute anything to prove the efficiency of the policy.

My Learning

I am lucky. That’s for sure. I have a template to research a stock, I read books that enforce my bravery to invest in a market (Thanks Howard Mark!) that has extreme pessimism, and last but not least I don’t invest in a way that will ruin me.

But I think the takeaway I have in these 2 weeks is:

·         Market is irrational.

·         What never happened before, doesn’t mean it wouldn’t happen.

·         There are people out there doesn’t care about the safety of their wealth in hopes to earn more wealth.

I must be inexperienced to find this behavior mind-blowing…

 

Yours Humility

Manferd