Why it makes sense to switch to US equities

Why it makes sense to switch to US equities

Some Hong Kong equity investors ask why they should shift to the US market, given that they are less familiar with the equities there.

For an answer, they just need to take a look at these numbers.

The Hang Seng Index has rallied 25 percent to 27,000 points over last two years. By contrast, the Nasdaq index surged 60 percent to 8,000 points.

After hitting a new peak in January this year, Hong Kong market has been mostly on a downward path, and has recently slipped to almost the lowest level in one year. Meanwhile, the US market continues to set new highs. And the gap will widen even further in the future.

True, Hongkongers may not enjoy an edge in investing in US stocks. However, the market there is very transparent, and all US-listed firms need to publish quarterly reports as well as offer clear guidance from the management.

Investors can access conference calls held by the management as well. Also, the US market has class action protection for minority shareholders.

Many US tech giants are multi-national corporations. Their products, websites, and mobile apps are already in our everyday life.

Looking at other aspects, many people think that Hong Kong investors have a home-market advantage in investing Chinese stocks. But is that really true?

Can we really understand why certain products are so hot on the mainland? Even as we closely follow mainland market news, do we really know what’s going on and understand the latest situation?

Frankly speaking, mainland investors have more advantage than us, either because of better understanding of the situation there or due to better reading of the policy trends.

Often, Hong Kong investors have no idea why there is a sudden slump in a particular mainland stock. Some local investors would rush into the market for bargain-hunting, only to see the stock price halve. They get to know the reason behind the slump only at a later stage.

The mixed quality of newly-listed companies has made it even more difficult to take bets on Chinese equities.

By contrast, in the US there have been high-profile new listings in recent years. Also, stocks that have constantly been setting new highs are those that have already been listed for many years. The companies remain hot as they are able to keep launching successful new products or services.

The reason behind the sustained rally of the US markets is simple: the world’s top innovative companies are mostly listed there.

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