early signs from Hong Kong

Over the past couple of weeks, property stocks in Hong Kong are up sharply.  What makes this interesting is that in that market, property stocks and trading conglomerates (the successors to the old British opium companies) are the main ways of playing a cyclical upturn there.

economic policy stances

Describing the present situation in world markets in the most basic terms, we might say that the US and the EU are trying to deal with structural problems that are being made somewhat worse by a cyclical downturn in trade with emerging markets.

China, on the other hand, is dealing with a cyclical domestic downturn induced by government policy, which also is being made somewhat worse by the structural issues its Western trading partners are facing.

The US adopted an accommodative money policy years ago to address its problems, but appears unable so far to make any supportive fiscal changes.  The EU is very belatedly beginning to move on both fiscal and monetary fronts.

China has recently begun to reverse its restrictive interest rate regime, as its economy has begun to slow markedly.

China’s moves already making a positive difference?

That’s what the stocks of Hong Kong property developers appear to be saying.  It’s possible that property stocks are only moving in anticipation of future economic growth and not in reaction to the first stirrings of that growth itself.  My hunch is that the latter is the case, because I don’t read any world markets as being confident enough to act on policy changes alone.

Nevertheless, it’s still early days–too early for all but the most aggressive investors to act.  But the property stock movement does bear watching.  If Beijing’s policy efforts are already beginning to kindle even a mild cyclical upswing in the Chinese economy, there are two positive implications for equity investors.

–Hong Kong stocks, and especially pro-cyclical, China-related sectors like property, would continue their recent outperformance for a considerable time to come, and

–companies listed in other markets which have important China exposure and which have been languishing recently–luxury goods makers, for example–would likely become attractive investments again.