Unlike some of the major indices,(London has just closed 2016 at an all time high as I write this) The Hang Seng is not ending 2016 on or close to all time highs. This lack of dynamism in the year was part of the previous forecast. However that ended with the suggestion that we might be in new conditions and globally that certainly seems to be the case.
Of course as we have said before it is a strange index, distorted by a few companies ( 4 make up over 50%) but we’ll carry on regardless.
The first three months of 2017 show indications of an increase in trade. There are some factors which tend to undermine the index and a requirement to adjust the composition to protect value.
The longer term undermining continues in the second quarter with some depression of values.
This period may also see some surprises for investors, leading to more volatility than we have seen in the last year or so
The themes continue in July to September but they seem more background than immediate then.
The final quarter is much more active. While there are still both surprises for investors and elements that drag the market down, there may also be a sudden increase in trading around October and a particular focus on the market towards the end of the year an even a temporary rapid uptick in value
January to March of 2018 is more mixed. Investor surprises continue, but the conditions supressing value are reducing. On balance there may be much ado about nothing and the market end the quarter more or less where it began.
April to June, however, see the beginning of a new long term phase for the index and initially this seems broadly positive, although there is still some switching and other adjustment to be made.
July to September is a very mild period. Any movement is likely to be upwards – but it won’t be dramatic.
October to December sees a return to the frantic pace of late 2017.
There are less shocks now though, at least in October and November when there seems to be a major tension between the direction of value of the individual components
December is a month of more excitement when all eyes may be on the index.
January to march 2019 is once again positive. The trend in the market seems to be moving towards upwards, although there are still some concerns dragging things down.
April to June, however, sees a bigger change of emphasis. First there is more trade and a push to high values. But this is also the beginning of a critical 12 months or so when the fundamentals are either ignored or unclear.
July to September sees these themes intensify. There are shocks for investors as well as rapid trading. However there is also some protection in the form of a stabilising influence that will prevent things getting completely out of hand
The final quarter of 2019 is key. Although there will be difficulties for some investors, and indeed for the index proprietors here seems to be enough to prevent either melt up or melt down even in the face of some “interesting conditions”
January and February 2020 still see confusion over the fundamentals, but although it may a tricky period for investors, the general trend is for relative stability and continued support for the index.
March To June are more mixed, but again there is support. Probably running the index is more problematic than holding it now.
July to September is more mixed. There may be some shocks which destabilise things and there may be undue focus on this index at that time- perhaps difficulties with a major component, overall though there is still some positive sentiment.
Indeed October and November see the likelihood of a boost, although once again the situation is more troubling for the index proprietors again than the investors, who are feeling extremely positive.
December confirms that positive mood, but there are some sudden trades which might pull the rug from under some investors. The year ends with what is probably a significant switch of components rather than an overall index value trend.