Asian equities slipped a little on Friday after Wall Street's shocking losses the day before, but it was hardly the "plunge" I heard described on the BBC World Service. It seems as though they'd written that copy ahead of time, expecting a sharp drop matching U.S. losses, one that never came.
Australian stocks, which started trading early, closed with some of the steepest declines, the S&P/ASX 200 down 1.9%. Japanese stocks lost 1.1% in the form of the broad-market Topix index. Korea's export-driven economy was hurt the most, the Kospi 200 down 2.4% for the day.
Asian equities didn't fall as far as Wall Street because they hadn't risen as high. From here in Asia, it makes absolutely no sense that U.S. stocks are setting records once again, all while a painful recession is unfolding and with a health crisis that is far from under control in the West.
The FANG stocks have been leading the way, of course, with investors seemingly believing they can't lose. But when investors think stocks are only heading one way, they're heading for disaster.
I said as much on RTHK Radio 3's morning drive-time biz show, Money Talk, where I talked of "froth" in the U.S. markets. But little did I know that American stocks the very next day would see their worst trading session since the coronavirus outbreak started to shake them in mid-March, with the Dow down a particularly sharp 6.9% on Thursday.
The state of U.S. markets concerns me. Share movements appear to have little to do with the fundamentals of the underlying companies. This disconnect is clearest in the penny-stock run-up of companies such as Hertz Global (HTZ) , J.C. Penney (JCPNQ) and Chesapeake Energy (CHK) , which will likely literally be worthless if bankruptcy goes ahead.
Will this lack of attention to corporate performance change? After Australian shares closed on a loss for the week of 2.5%, breaking a string of six weeks of gains, market participants think it may.
"We are probably in what I would call a circular bear market now," Brad Smoling, managing director at the Aussie financial advisers Smoling Stockbroking, told Reuters. "The euphoria of all the stimulus and free money is starting to wane and investors will start to take notice of earnings and balance sheets of businesses that are going to reopen."
But are people really pouring over the balance sheets and profit statements of Facebook (FB) , Amazon.com (AMZN) , Netflix (NFLX) and Google/Alphabet (GOOGL) or Apple (AAPL) and Microsoft (MSFT) for that matter?
Here in Hong Kong we have our own equivalent of the FANGs developing. Tencent Holdings TCEHY has had its primary listing here since it went public in 2004. But we have listings from Alibaba Group Holding (BABA) as of last November, while NetEase (NTES) started trading in Hong Kong on Thursday.
After posting an immediate gain of 9.1% minutes after 9999.HK started trading, NetEase ended Friday with a loss of 1.2%, which nevertheless means the shares are up 4.5% from their HK$123 listing price. Alibaba's Hong Kong stock is up 20.4% since November and it is looking like the shares may retest their January high.
As of next Thursday, we are due to have a Hong Kong listing for JD.com (JD) , the Nasdaq-listed e-commerce platform and delivery company. Both NetEase and JD.com are raising around US$3 billion with their secondary listings here, which brings them closer to highly speculative mainland Chinese investors. They pay higher valuations for the few decent companies they can get.
Retail investors oversubscribed the stock offer for NetEase by 360 times, compared with just the 40 times oversubscription for Alibaba. JD.com's offering, which has priced at HK$226 per share, has seen retail investors place orders valued at 179 times the stock available to the public, according to the South China Morning Post.
So you can have the FANG stocks on Wall Street, and we'll have the TANJ stocks in Hong Kong. Tencent leads the world in mobile gaming, with NetEase in second place. Alibaba and JD.com are the two largest e-commerce retailers in China. It may be that Asian investors will start paying as little attention to underlying fundamentals as it appears U.S. investors do with tech stocks. Those are worrying signs indeed.