The Year of the Dragon seemingly puts an end to a half-decade-long market drought. 

What a difference a couple of months and the coming and going of a Lunar New Year makes. As finews.asia relayed at the end of January, Hong Kong’s mainline equity index was testing the mid-15,000s, down more than half of its all-time high of 33,000 reached in 2018.

Now, a few months on, and one very auspicious animal sign in the Chinese zodiac cycle later, the situation looks entirely different. The index is hovering at around 19,000, having gained just under 20 percent in the last month alone.

The Question of Continuity

So, what's up? Is this a fundamental shift or just a temporary aberration waiting for the next chart-technical analyst to pour cold water all over it with a bevy of support and resistance levels? 

There seem to be many things counting in the index’s favor. Among them is the strength of equity markets worldwide, including the US, which lurks near all-time highs as it continues to bask in AI-related comforts, particularly after a lukewarmish CPI read overnight.

Soft-Pedaled Sentiment

Moreover, in hindsight, the market may simply have become oversold and the fact that the torrential news flow related to China’s economy has ebbed may be doing the job of pacifying overall sentiment.

Still, not everyone is entirely convinced about what is going on. Lombard Odier CIO John Woods indicated in a viewpoint published on Tuesday that the rally does not look sustainable.

Spectre of Deflation

«Corporate revenues will be key to sustaining the rally. However, the Chinese economy continues to suffer from deflation, prompting expectations for looser monetary policy,» he indicated.

The economic context makes it difficult for the mainland to take that step, as it would enhance capital outflows and dampen domestic demand.

Lack of Western Investors

But the rally to date has been significant enough that it prompted «Nikkei Asia» (registration required, eventual paywall) to write a longer piece on the goings on.

Their take? The gains are being made despite a conspicuous lack of Western investors, raising questions about its depth.

Support Measures

The «South China Morning Post» (registration required, eventual paywall) didn’t entirely jibe with that, saying in an article on Monday that global investors were returning to the market given they were «encouraged» by China’s policy support.

The local English-language daily newspaper and website indicated that net purchases by US hedge funds had risen in the past two weeks and that foreign equity ownership was up at 23.6 percent in April, up from 23.1 percent in January.

Hard to Tell

But that is par for the course with financial markets. Without the benefit of hindsight, it is hard to really tell what is going on at any one specific time.

A data visualization by digital publisher Visual Capitalist puts the current discussions into an entirely different perspective by showing the five-year growth of a $1,000 equity investment in different stock markets as of April 1.

Very Nifty

If you had put money in India’s Nifty 50, you would have been able to pocket almost double that, or $1,924. In the same timeframe, Japan’s Nikkei 225 would have handed back $1,725, the US S&P 500 $1,709, followed by Canada and the UK’s mainline indexes ($1,310 and $1,098 respectively).

The Hang Seng was the only index showing a sizeable loss, handing back a relatively paltry $598 for that initial $1,000 – although the snapshot of figures for the graphic was taken before much of the recent move up.

Auspicious Year

Still, it is early in 2024’s Year of the Dragon - and that of the Wood Dragon more specifically.  

Lest we forget, the fifth animal in the Chinese zodiac is the only mythical creature in the 12 signs and is commonly understood around the world as representing good fortune.

Rising Index

The five elements are not quite as well-known around the globe but wood, at least in investment terms, can symbolize the arrival of spring and growth. Take what you will from all that, but most of the other markets out there don’t have that going for them.

There is one thing that we can see beyond doubt, however.  The index was up about 1 percent at about 19,290 in early trading on Thursday.