To The Moon

Hang Seng Index has risen from it's Oct low of 14597 to 22700 within 3 months. That's a whopping 55.5% increase. So should investors worry about a 7% drop in some of the big tech? Or worry that this is the end of the rally?

Let's remove the prediction factor because prediction is base on individual opinion. When one individual is bullish, there will be another who is bearish. It's just like listening to an expert or investment strategist telling you their views on S&P. Who should you listen to? 😂

https://www.cnbc.com/market-strategist-survey-cnbc/

1) The same also apply to HSI, so let's deep dive into the facts.

Statistically a bear market doesn't last more than 3 years so the probability of HK/China heading back into another bear is low.

Looking at the 30 years historical chart of HSI, it ended the year in red from 2020 to 2022. The last time this happened was back in 2000 to 2002. Since 1987 to 2022, there has never been 4 straight years of HSI ending the year in red.

Since 1987 to 2022, HSI ended the year in red 14 out of 36 years, so there's a 38.8% probability we will have another red year vs 61.2% probability in green.

Sources extracted from https://www.macrotrends.net/2594/hang-seng-composite-index-historical-chart-data

Base on above data, the odds of HSI staying in green is with higher probability.

2) Generally if the market has risen over 20% from its low, it can be considered the start of the new bull. A strong 55.5% increase for HSI does speak volumes.

So should we be concerned with a 7% drop after a 55.5% rise? Even with another 10% drop due to profit taking, it's still a nothing burger. The fact is nothing goes up in a straight line.

3) HSI PE ratio - The market is trading at a PE ratio of 10.5x which is lower than its 3-year average PE of 12.3x. This implied there's still ground for HSI to move higher.

Another data to consider. The PE ratio reached an all-time high of 20.529 in Nov 2009 and a record low of 6.519 in Oct 2008. 

Clearly, HSI still have a mountain to run to reach its peak base on these data.

4) The bottomline is if you believe in the HSI recovery then stay the course. If you have better alternative than nothing wrong with profit taking and move your funds to another great investment. If you have no conviction then stay away from HSI. I understand this market is not for everyone.