Many investors felt that US stock valuations were too high in the second quarter.
Some of them even believed that after the market bubble burst, money from the bubble would flow into comparatively low-value stocks in Hong Kong and on the mainland.
The only thing is that the US market saw a significant decline in April and May and there was no capital outflow to this region.
Recently, the US market has been subject to significant volatility due to the unwinding of yen-related interest rate differential transactions.
The funds were mainly used to buy back yen to close short positions.
However, recent data show that unwinding yen positions should not, in theory, affect them, even if not much capital is flowing into short selling the yen for investments in the mainland and Hong Kong.
However, recent global market volatility has seen international investors reduce their holdings in both markets.
There have been net sales of A shares this year via the Stock Connect service between Hong Kong on the one hand and Shanghai and Shenzhen on the other, showing that international investors continue to refrain from buying Chinese stocks despite the possibility of a peak and turnaround in the US market.
This trend contradicts the view that “the East is rising and the West is falling”.
However, upon closer inspection, it is obvious that this belief has logical problems.
The rise in stock prices in China and Hong Kong does not necessarily reflect declines elsewhere. Rather, it should reflect promising prospects for the Chinese economy or strong, sustained growth in corporate earnings.
However, the economic outlook for China is currently unclear and the performance of Chinese stocks has not been outstanding recently.
This makes it difficult for Hong Kong and Chinese stocks to benefit from a potential peak and turnaround in the US market.
In addition, it is quite risky for investors to bet that a general decline in the US would benefit both countries.
If a decline were to occur, it would only increase the risk of global war, as the United States, the world’s strongest military power, would most likely increase its military activities to consolidate its position.
This would only lead to an increase in geopolitical risks and at such a moment no stock market would benefit.
The assumption of many investors that the US dollar will ultimately lose value because they fear it will be replaced by Bitcoin is also unrealistic.
Given such a scenario, the United States would spare no effort to ban Bitcoin transactions.
The upward trend of Bitcoin in recent years is mainly due to the fact that US regulators have allowed trading of exchange-traded funds with the cryptocurrency on the financial markets.
Therefore, its fate is fundamentally tied to US politics and the first decentralized cryptocurrency can therefore in no way replace the US dollar.
The future of Bitcoin lies only in the shadow of the US dollar.
Andrew Wong is Chairman and
Managing Director of Anli Holdings
