January 8, 2014 1:00 pm JST

Analyst sees Hong Kong stocks tumbling up to 60% in 2014

NORIKO OKEMOTO, NQN staff writer

HONG KONG -- The Hong Kong stock market has gotten off to a somewhat rocky New Year's start, with the Hang Seng Index rising only slightly Tuesday morning after significant drops Friday and Monday.

     Market expert Leung Bing Yiu at Corporate Brokers sees continued gloom.

     Q: How do you expect the Hang Seng Index to move in 2014?

     A: My view on the index's performance this year is pessimistic. I forecast the index will drop to 14,800 to 9,200 at the end of 2014 through the beginning of 2015, down about 36-61% from 23,306 logged at the end of 2013.

     Q: So how do you see the bullish market sentiment around the rest of the globe, especially considering that the Dow Jones industrial average is trading at an all-time-high level?

     A: The Dow's upward movement is highly likely to shift to the opposite direction this year. When the market is bullish, an uptrend is normally said to continue for 55-60 months. As of December, it had been nearly 60 months since March 9, 2009, when the Dow hit a low of 6,547. That means the index could start falling at any time, and the market become bearish.

     The upward and downward movements of the Dow have expanded like the shape of a bell since 2000. When that happens, it is said that the expansion ends after the index hits three highs and two lows. The Dow hit its third high, 16,576, an all-time high, on Dec. 31. The index will stop its upward movement and start falling this year because it has already hit two lows.

     Q: And Hong Kong stocks will follow suit?

     A: Hong Kong goes through an economic cycle of six to eight years. In the last six to eight years, the Hang Seng hit an all-time high of 31,638, on Oct. 30, 2007, and a low of 11,015, on Oct. 27, 2008. The range of the index's fluctuation has since narrowed gradually. While the gap between Oct. 30, 2007, and Oct. 27, 2008, was 20,623, the recent gap between the upper limit of 23,822, logged Jan. 30, 2013, and the lower limit of 19,813, logged June 24, was 4,009.

     After the Hang Seng hit a high of 24,111 on Dec. 2, 2013, it entered a new fluctuation cycle. The index will then fall to the next lower limit. I predict the fluctuation range will narrow further from the previous (loop), and the index's bottom will be limited. However, Hong Kong stocks will fall in line with a decline in the Dow. Because of that, the Hang Seng's losses may widen.