17.05.2022
Watch Hong Kong
Global investors should be keeping a close eye on Hong Kong.
As a small open economy with a US Dollar peg & growing Chinese influence, it is uniquely exposed to two of the biggest headwinds facing financial markets – the Fed’s policy tightening & the economic hit from China’s tech regulation & zero covid policy.
On an outright basis the Hang Seng is cheap to macro. But that valuation comes with a health warning as model confidence is rolling over aggressively. Macro’s explanatory power has fallen 25% in the last 2 weeks alone.
But Qi’s relative value model for Hong Kong versus broad Emerging Markets paints a different picture. In regime & now the Hang Seng is just over one standard deviation (2.6%) rich versus MSCI Emerging Markets relative to macro conditions. In Qi Fair Value Gap terms, this is the top end of recent ranges.
As a small open economy with a US Dollar peg & growing Chinese influence, it is uniquely exposed to two of the biggest headwinds facing financial markets – the Fed’s policy tightening & the economic hit from China’s tech regulation & zero covid policy.
On an outright basis the Hang Seng is cheap to macro. But that valuation comes with a health warning as model confidence is rolling over aggressively. Macro’s explanatory power has fallen 25% in the last 2 weeks alone.
But Qi’s relative value model for Hong Kong versus broad Emerging Markets paints a different picture. In regime & now the Hang Seng is just over one standard deviation (2.6%) rich versus MSCI Emerging Markets relative to macro conditions. In Qi Fair Value Gap terms, this is the top end of recent ranges.
