Beyond FOMO: Proactive Investment Strategies in a Transforming Hong Kong Market

by Anthony Law    2024-10-05

The recent surge in the Hong Kong and Mainland stock markets, following the U.S. Federal Reserve's decision to lower interest rates by 50 basis points, has been remarkable. Both price and trading volume have experienced substantial increases, hinting at a potential economic recovery. However, one can't help but wonder: does this truly mean that Hong Kong's economy will bounce back in the coming months? And what implications does this hold for the local technology sector?

As a technologist with a decade of experience in the Fintech industry, I have consistently devoted time to observing the investment market and evaluating economic conditions to adapt our business strategy accordingly. While this article reflects my interpretations of the market, it also conveys my thoughts on how local businesses can adapt to ongoing economic changes. By analyzing market trends and understanding their implications, I aim to provide insights that not only guide our own strategic direction but also assist others in effectively navigating the complexities of the financial landscape.

Market Momentum and Strategic Decisions

Much of the investment market's momentum can be traced back to strategic decisions made by Mainland China in response to the Federal Reserve's interest rate decision on September 18, 2024. For years, China has strategically refrained from closely following U.S. interest rate policies, positioning itself to adapt when these policies change. This calculated approach carries significant implications for investors. As ongoing tensions between the United States and China—particularly regarding trade and technology—create a complex landscape, those who closely monitor these dynamics can often predict market movements more effectively.

The Impact of FOMO on Investment Behavior

Meanwhile, there has been a significant amount of short covering by large hedge funds that have shorted Hong Kong stocks while investing in the U.S. and European markets for quite some time.

Many long-only investment managers not only waited until after market downturns went up significantly to make their moves but also experienced a fear of missing out (FOMO) after rapid and substantial market jumps. This FOMO prompted them to enter the market, further boosting prices and creating a cycle of heightened volatility. I do not see this reactive investment behavior as market sentiment overcoming rational strategic foresight; rather, I view it as a shift in investment strategy that should not exclude the Mainland and Hong Kong markets from their portfolios.

Proactive Investment Strategies for Individuals

As individual investors, can we implement a more proactive investment strategy? Absolutely, but we often find ourselves focusing on events and perspectives highlighted by our personal networks or the media, while neglecting important facts that receive less attention.

Noteworthy Developments in the Market

A noteworthy fact that has not garnered sufficient media coverage is that mainland companies listed on the Hong Kong stock market, constituting a significant portion of its market capitalization, have demonstrated resilience and growth during this economic downturn. This fact may not seem sudden or explosive enough to attract media attention, but there may also be some media outlets deliberately downplaying it for various reasons.

Global Trade Dynamics and Currency Exchange

From the perspective of global trade and currency exchange, Middle Eastern countries like Saudi Arabia have increasingly adopted the Chinese yuan (RMB) for oil transactions since December 2022. This raises an important question: what can they do with the RMB earned? Could this shift serve as a hidden driving force in the investment market in Hong Kong and Maindland China? By strategically investing the proceeds from oil trade into sectors with high growth potential during our market downturns, these countries could not only diversify their economies but also stimulate broader economic development.

Understanding Market Dynamics

Understanding these dynamics allows investors to make informed decisions rather than simply reacting to market fluctuations. This proactive approach can lead to more sustainable growth and resilience in an ever-changing economic landscape.

Navigating an Evolving Landscape

In light of these developments, how should technologists react to take advantage in this evolving landscape? The ongoing reconfiguration of global supply chains is particularly significant in this context. The U.S. is actively seeking to reduce its reliance on Mainland China for technology and manufacturing, presenting both challenges and opportunities for regions like Hong Kong.

Hong Kong's Positioning for Growth

As multinational companies look to diversify their supply chains, Hong Kong is well-positioned to capitalize on this shift, with its technology sector poised for increased investment and growth. Recently, the Hong Kong government announced a substantial HK$24 billion (approximately US$3.07 billion) investment to boost the innovation sector, reinforcing its commitment to becoming a global tech hub. This investment will not only enhance the local technology ecosystem but also attract foreign investment and talent, further solidifying Hong Kong's role in the international market. Let’s take a closer look at these developments in Hong Kong.

Highlighting Key Initiatives: mBridge

One standout initiative driving this momentum is mBridge, a pioneering project designed to enhance cross-border payments through central bank digital currencies (CBDCs). Launched in 2021, mBridge reached a significant milestone in June 2024 by achieving its Minimum Viable Product (MVP) stage. This project has successfully conducted over 160 transactions during its pilot phase, demonstrating how distributed ledger technology can streamline real-time transactions across borders. Note that mBridge serves as a strategic move to reduce dependency on the U.S. dollar for international trade, allowing participating countries to utilize their local currencies more effectively. The involvement of five central banks—Hong Kong, Thailand, the United Arab Emirates, China, and Saudi Arabia—along with over 31 observing members from various countries underscores its growing influence in the fintech landscape. By addressing key inefficiencies in cross-border payments, mBridge aims to make transactions faster, cheaper, and more accessible for all parties involved.

Government Initiatives: RAISe+

The Hong Kong government launched RAISe+ in October 2023, emphasizing its commitment to harnessing local universities' potential in research and development (R&D) commercialization. This initiative aims to facilitate collaboration among government bodies, industries, universities, and research sectors, creating a more integrated approach to technological advancement. The involvement of organizations like Code Is Play highlights the vibrancy of this initiative, showcasing how universities are increasingly taking an active role in driving technology development. By transforming research outcomes into viable commercial products, Hong Kong's educational institutions can significantly contribute to both the local economy and its innovation ecosystem.

The Low-Altitude Economy: A New Frontier

The low-altitude economy in Hong Kong is gaining momentum as the government actively seeks to promote and develop this emerging sector. Defined as an integrated economic model that encompasses both manned and unmanned aviation activities within airspace extending up to 3,000 meters, the low-altitude economy presents significant opportunities for growth, particularly in areas such as logistics, transportation, and tourism. The Hong Kong government is collaborating with various departments to remove regulatory barriers and implement pilot projects, starting with unmanned aircraft for goods transport. This initiative aligns with the broader national strategy to foster Advanced Air Mobility (AAM) and is expected to attract investment and innovation. The development of new infrastructure, such as vertiports and communication networks, is also underway to support low-altitude activities.

The Role of HSITP

The Hong Kong-Shenzhen Innovation and Technology Park (HSITP) has made significant strides by signing memoranda of understanding with around 60 partners from nine economies in April 2024. This collaboration is vital for establishing the Greater Bay Area as a competitive technology hub that can rival similar regions in the U.S., reflecting the government's foresight in strategically positioning Hong Kong within the global tech landscape. In addition to the Hong Kong Science Park and Cyberport, HSITP aims to enhance innovation across various sectors, including life and health technology, artificial intelligence, and microelectronics. The park's strategic location at the Lok Ma Chau Loop further strengthens its role as a key player in cross-border technology collaboration, attracting both local and international enterprises to foster a vibrant ecosystem for innovation and development.

Commitment to Emerging Technologies

As mentioned in my previous article, centers like the Center for Perceptual and Interactive Intelligence and the Hong Kong Generative AI Research and Development Center underscore the government's commitment to advancing emerging technologies. These centers aim to foster collaboration between academia and industry, further solidifying Hong Kong's role as a key player in global tech innovation. By creating these hubs, the government is not only promoting research but also facilitating the practical application of innovative ideas essential for driving economic growth in the region.

Conclusion: A Strategic Shift

What are the implications of these significant developments? If I want to avoid being a reactive investor—like those currently experiencing FOMO in the Hong Kong and Mainland markets—it's essential to recognize that Hong Kong is undergoing substantial changes and is committed to advancing technology development. With funding readily available and a focus on solid growth, now is the time to engage proactively with these opportunities rather than waiting for trends to unfold.

While local technological development may not be the primary driver of Hong Kong's investment market, it reflects the government's commitment to transforming aspirations into actionable policies that align closely with Mainland China's economic development strategy. This proactive approach marks a clear departure from the previous reliance on the property and financial industries, fostering optimism about Hong Kong's economic prospects. Sustained investment in technology is expected to enhance overall economic resilience and growth. By creating an environment conducive to innovation, Hong Kong is laying a strong foundation for future success that could positively impact both its economy and investment landscape. As the region continues to adapt and evolve, these efforts will be crucial in positioning Hong Kong as a key player in the global technology arena.