Us stocks are overcast, but Hong Kong stocks are still strong.

The US stock market has been in the doldrums over the past two weeks, and the stock market seems to be moving in the opposite direction since the release of the blockbuster data-CPI in November. The previously announced CPI fell, and the stock market went on a spree. Just after everyone thought it would do the same, US stocks poured cold water on it.

The reason is Powell's hawkish stance, which helps to reduce inflation, but the market is worried that high borrowing costs will be maintained, and for the United States, which is used to "borrowing", the risk of recession next year is rising sharply.

The fundamentals of the US economy and the Federal Reserve occupy an important weight in US stocks. Economic expectations have changed from prosperity to decline, and interest rates have been raised continuously. It is probably very difficult for the stock market to get out of the adverse trend.

But what is surprising is not only the trend of US stocks, but also the trend of Hong Kong stocks. The decline in US stocks is supposed to follow the decline in Hong Kong stocks, which have always been highly correlated with US stocks, but this is not the case. The Hang Seng Index is still trying to challenge 20000.

Do Hong Kong stocks really have to be independent this time?

01. Why are Hong Kong stocks so strong?

Many people were surprised by the strong rebound in Hong Kong stocks since November.

When there was a sharp fall at the end of October, many people thought that Hong Kong stocks were coming to an end. Unexpectedly, only a week later, Hong Kong stocks went crazy. Among the reasons, the policy of optimizing epidemic control and the country's entry into the economic model are the biggest factors, but another point is also very important, that is, Hong Kong stocks have fallen too much today.

At the end of October, the Hang Seng Index fell to 14000 points and the Hang Seng Technology Index fell to 2700 points.

What is this concept?

Let's take a look at it for a long time. The Hang Seng Index has fallen back to the level of 10 years ago, which is lower than the bottom of any new crown disease, the bottom of the trade war and the bottom of 15 disasters. If we look at it for a longer time, it will be almost 200 points lower than the high level in 1997.

It is said that the Shanghai Composite Index has not risen for many years, and Hong Kong stocks have become ruthless, and they can go back to 25 years ago. The Shanghai Stock Exchange did not dare to do this, so I asked if you were afraid.

And the valuation level of Hong Kong stocks, as the index continues to decline, to 8 times, at the low of the top 20 points in history, all say that the global capital markets are suffering because of the Fed's interest rate hike, the Russian-Ukrainian war black swans, and high inflation, but compared with Hong Kong stocks, are other markets miserable?

In contrast, US stocks, such as the Nasdaq Index, which fell the most this year, have not yet returned to their pre-epidemic high, let alone the bottom of the epidemic, which is even more peak than before.

In terms of valuation, Nasdaq's dynamic PE is now about 25 times, down from 21 years, but still well ahead of most years after 2008.

Compare the two, make a verdict.

let me put it another way,It is not that the Hong Kong stock market is strong, but because the Hong Kong stock market is really too miserable. Where else can it fall?

Even after more than a month of rebound, the index has only returned to its position in August, not to mention this year's high, even at the end of the epidemic, there is still more than 1000 points away.

Moreover, Hong Kong stocks mainly rely on China's economic fundamentals, which is moving in a good direction. In terms of liquidity, the Fed's interest rate hike is coming to an end, and most of the impact of contraction has been reflected. These two major factors are improving marginally, is there any reason for Hong Kong stocks to continue to fall?

But American stocks are different.

02. The riddle of the American economy

Judging from the current high US stock index and valuation, the high probability has not fully valued the risk of recession. Although it has fallen a lot this year, it mainly reflects the contraction of liquidity. However, this really cannot be blamed on US stocks, because the US economy has actually performed better than many places this year.

Why do you say that?

Look at the data.

The US Department of Commerce just announced that the US third-quarter GDP growth rate was revised up to 3.2%, higher than the previous 2.9% and higher than the expected 2.6%. According to the US Department of Labor, the number of first-time jobless claims in the United States last week was 216000, and the market is expected to be 222000, compared with 211000 the previous week.

The higher GDP growth rate largely reflects the upward correction in consumer spending, which is the main driver of the US economy. Consumer spending rose 2.3 per cent in the third quarter from a year earlier, up from the 1.7 per cent previously reported, as spending on services was stronger than previously reported.

Despite the rise in interest rates, consumption remains strong. Initial jobless claims rebounded less than expected, underscoring the fact that the labour market has not changed its momentum under the blow of higher interest rates.

The economy is so strong, do you think there is any reason for the US stock market to collapse?

But then again, there are a lot of misjudgments about the US economy.

Under the impact of this year's conflict between Russia and Ukraine, strong interest rate hikes, energy crisis, epidemic situation, food crisis, and various impacts, the US economy does not seem to have major problems as predicted by some market views. looking back at some economic data this year at the end of the year, GDP growth, labor market, and consumer spending all seem to be fine.

Isn't the market saying that high inflation will lead to a repeat of the Great stagflation of 1970 in the United States? What's going on?

In fact, the answer can be found when we return to the basic driving force of the US economy.

The American economy is consumption-driven. To put it bluntly, it means that people eat, drink and play. As long as people continue to eat, drink and play, the party of the economy can continue to high.

With this logic, it is much easier to understand an important event. When the epidemic hit the United States in March 2020, their decision makers made an astonishing move to hand out money directly to ordinary people, adding up to about $6000 a month for a family.

This $6000 is actually the median household income in the United States.

This means that American families do not have to do anything, have income, and not just a month, but can match the dynamic impact of the epidemic. Then, there is a spectacle. When we try our best to resume work and production and grab export dividends, proving that we have achieved economic growth seamlessly because of epidemic prevention, ordinary Americans will have money at home. Since they are rich, eating, drinking and merrymaking will not fall behind. Since consumption, how bad can the American economy be?

I just want to say, don't think there won't be pie in the sky, it's just not in your house.

There is already a surplus of food, coupled with the fact that there are too many COVID-19 deaths and immigration restrictions in the United States, which has indirectly created a labor gap. When the supply of employees falls short of demand, wages will rise. The working people in the United States are now not worried about being out of work. I'm just worried about which salary to do.

So,The reason behind the high inflation in the service industry is the strong ability of ordinary people to pay.Because if interest rates are raised and borrowing costs are high, it may not be cost-effective to buy a house and a car. After all, this is not a rigid demand, but many of the demand for services are rigid. Hire a babysitter at home, wash a car, and send the children to an interest class. This is something you have to do if you have money or not, not to mention that you still have money in your pocket, so why not do it?

Of course, this simple and brutal economic support plan has also led to the current situation of high inflation, labour shortage and insensitivity to interest rate increases in the service sector.

But in any case, this policy can at least enable the United States to get through those difficult epidemic periods smoothly, in fact, this is similar to our strong control, although it pays a certain economic price, it does prevent people from large-scale infection and death.

From this point of view, there may be great differences between China and the United States in dealing with the epidemic, but they are all based on the actual situation of their own countries, at a cost that everyone has, but the results should be said to be successful.

03. Us stocks still have room for downside.

Recently, major investment banks have issued a unanimous report predicting that the US economy will fall into recession next year.

In this regard, I think there is a very good reason.

First,The current interest rate level of the Federal Reserve has been the highest in 15 years, and it will continue to raise interest rates several times next year before reaching its peak, some say 5%, some say 5.25%, some even say 6.5%, 7%, but in any case, it is certain that it is higher than it is now, setting a record for many years.

The role of interest rates is lagging behind, and the cooling effect of high interest rates on the US economy will emerge step by step next year.

Second,American policymakers seem to have reached a consensus that a recession is acceptable since inflation is effectively reduced to 2% to avoid a broader economic crisis, which explains why Mr Powell has always been hawkish.

In other words, you don't have to worry about a recession in the United States. in fact, this is not a hassle, but a good thing, because now the American people are too rich, and the money was originally given to you by the government. What's the problem with recycling it now?

Besides, an economy that requires a strong contraction to cool down is a bit like stopping Lionel Messi from shooting and using fouls, but does this prove that the coach's defensive strategy is appropriate, or that Messi is too strong?

Third,It is some companies that have experienced a decline in performance, layoffs and a sharp drop in share prices.

However, in understanding the concept of the US recession in 2023, I think you need to rethink, what exactly is the coming US recession?

As in 1929, a large number of enterprises closed down, a large number of workers lost their jobs, social crises were numerous, and war was imminent. Or is it like in 2008, when many people's houses were repossessed, many businesses closed down and many people lost their jobs?

I don't think the problem is so serious that whether many companies will close down or not, at least for now, is that ordinary people are still so rich and their spending power is still so strong.

From many institutions' forecasts for the US economy, we can see that they have lowered the US economic growth rate in 2023, but few institutions think that the US economy will experience negative growth next year, so a recession seems hard to avoid. After all, such water was released in 2020. You always have to pay it back, but it may be too much to assert that the recession will be as severe as it was in 2008, 1970s or even 1929.

But in any case, U. S. stocks are not ready for this recession, looking back, the possibility that U. S. stocks will continue to decline is still high.

Needless to say, Nasdaq, like Dow Jones, although traditional value stocks are easily sought after in a recession, look at this position, it is so high that people almost forget that there is a recession.

04. Conclusion

There are good reasons why US stocks are depressed and Hong Kong stocks are strong, and Hong Kong stocks are strong enough to step out of the market independent of US stocks. Although this strength is acquired by "bloodshed".

If you want to invest in US stocks, now may not be a good time. In fact, there is no need to be in such a hurry. It is not too late to let it adjust itself to the right position. For Hong Kong stocks, there is no need to be too pessimistic, waiting for it to build up its strength and then make a breakthrough.

However, there will be three time points in the future, whether they are US stocks or Hong Kong stocks, which need to be paid close attention to.One is when the interest rate hike is announced to be over, the other is when the US economy hits bottom, and the other is when it is waiting for the United States to announce a cut in interest rates.

2023 may not be good, but after 2022, is there anything to be afraid of?