This morning I purchased some Hong Kong Tracker (stock code: 2800) at HK$13.00.
While I expect economic conditions to get worse before they start to improve, I also recognise that:
1. the local market has fallen nearly 60% from its high point in early 2008Q4. Historically there have been very few occasions in which such a dramatic decline has not represented a good buying opportunity - if one can take a multi-year view of the markets;
2. gearing is relatively light amongst the Hang Seng Index constituent companies. They are well placed to weather the economic storm;
3. the banking sector is in much better shape than its counterparts in the USA and Europe. Sure they are taking write downs on assets held on their books but the scale of those losses is relatively small;
4. the Hang Seng Index is heavilty weighted towards China. While decoupling has been debunked at least in part, I remain optimistic that China's economy will be a relative out performer over the next few years;
5. the yield is higher than well rated HK$ bonds. While dividend yields from the Hang Seng Index constituent stocks canbe expected to come under pressure, even if the dividends contract by 50% (which is more than the Asian crisis), on a yield basis it is still more attractive than bank deposits and can be expected to recover over time;
6. in terms of valuation parameters (PE ratios, PB ratios) the market is as cheap as it has been for several years. Yes it can get cheaper, but as my attempts to day trade have demonstrated, timing the market is not a skill that I can claim to have any talent for.
My cash levels remain solid with about 2 years of worst case living expenses and accrued tax liability sitting in the bank (earning very little).