Hong Kong and the Anatomy of a Parabolic Market Rise

Here we see the i-Shares Hong Kong ETF (EWH) and that market's rise to all-time highs, even as world markets have experienced liquidity-related setbacks:

Note the ramping up of volume as price has moved higher. We know that volume and volatility are closely correlated. When we have a parabolic market rise, we see market volatility expanding in the direction of market trend. New high prices are attracting further interest, and that keeps the rally going.

Apparently, in the wake of news that investors in mainland China will be able to invest in Hong Kong shares, there's an expectation of further good things to come: the Hong Kong bourse is investing considerable sums to expand that market's ability to handle increased transaction volume.

These parabolic rises tend to end badly, as we saw in Japan in 1980 and in the tech stocks in 2000. For now, however, you have to be impressed by a rally that hasn't been derailed by credit concerns, weakness in the U.S. and Europe, and worldwide risk aversion.

Comments

[rlirph:]

The difference between our Internet boom in 2001 and the one ongoing in China is that our economy was not expanding at 11.9%. That is why I do not expect to see the crash as most stock analysts do.

With an economy expanding at the current rate of 11.9% in an emerging market, there will be many instances of market imbalances. The stock market will go up and down. However, if one goes in early and can stomach the ride, the results will be rewarding.

All you have to do is to look at the stock market in Hong Kong between 1967-now, Japan in the 1980's, and Taiwan as well. All those stock market went up multiple times in a few years before adjustments. The key is to get in early. I have confidence that this Chinese market will top 10,000 before 2008 Olympics.

2007 Aug 30 08:10 PM

[LJ:]

Have you compared EWH with EWD?


finance.yahoo.com/char...;range=5y;compare=ewd;...

2007 Aug 31 09:22 AM