Remember yesterday? We do. And that’s saying something because in another life, our daily diet included a fifth of Kettle One, which made it exceedingly difficult to separate one day from another.
But those days are gone, which means we remember yesterday like it was, well, like it was yesterday which is why we can confidently say that on Monday, the Hang Seng snapped a 14-day winning streak, the longest since it was launched in 1969.
Here’s what we said about that:
So wave goodbye to Hong Kong’s record-breaking rally or, if the prevailing market environment is any indication, perhaps it’s better to say “wave hello to the next record-braking Hong Kong rally” which will probably start tomorrow.
Well by God it did “start tomorrow”. And we know that for sure because “tomorrow” is now today. And today, the Hang Seng rocketed higher by 1.8%. eclipsing the October 2007 peak in the process:
Is it bubble? Why, fuck yes it’s a bubble. Everything is a bubble.
And just to underscore the point, do note that with Tuesday’s explosion, the Hang Seng is now less than 100 points away from Goldman’s year-end target for the benchmark:
That said, it’s worth noting that Hong Kong shares have lagged the S&P since U.S. shares bottomed in 2009:
As you can see from the annotation in that visual, Hong Kong stumbled with mainland shares in the summer of 2015 when China’s margin-fueled equity bubble burst, prompting Beijing to step in with a truly hilarious set of draconian measures that at one point included halting half the market and arresting journalists.
So there’s a sense in which there’s some catching up to do and if you look at valuations, I guess both onshore and offshore shares are comparatively cheap (compare those multiples highlighted in green to U.S. stocks and global equities at the bottom of the table):
You’ll also note from that visual that H-shares are cheaper than their mainland counterparts which suggests southbound flows (via the connect) will support the Hong Kong rally.
One thing to note there is that it’s useful to think about it in terms of the yuan, although the relationship broke down a bit over the past several months:
Whatever the case, it’s onward and upward for the time being.
I wonder how many other sellside year-end targets the Hang Seng is already close to eclipsing.