HK investors experience market volatility
香港股民經歷股市劇變

As investors come to grips with the extreme market volatility of the past week, we look to the lessons learned in Hong Kong, where for the first time, investors taking part in the Stock Connect Scheme experienced huge swings in the value of their investments.

The precipitous fall in Hong Kong’s markets sent investors on edge in the past week. For the first time, the boon of an online trading link with Shanghai turned to bane.

Two-way cross border flow merely exacerbated the sell-off.

Eliot Li, who’s been in the business for 15 years, has never seen anything like this – since the global financial crisis in 20-08.

"Stunned... Of course. We were shocked on the speed and magnitude on the decline. This demonstrates how much volatility the HK market was imported from China with the opening of money flow across the border," Li said.

On the record drop in Hong Kong markets: Investors should "stay calm" and "beware of risks in the market".

Hong Kong authorities were quick to allay fears. Acting Financial Secretary Chan Ka-keung advised investors to "stay calm" and "beware of risks in the market".

Kenny Tang, who's also been in the business for 15 years, assured clients the rout was mere a short-term correction.

"I think the Stock Connect prospect is still good because in China the wealth of the citizens is quite very substantial and if we can channel some of the funds to Hong Kong market, I think Hong Kong would benefit," Tang said.

The ensuing recovery in Hong Kong following Beijing’s series of measures on its own markets brought some buyers back, but they came back surviving the fall, bruised and burned. The market rout taught them a gem of a lesson: cross-border trading not only facilitated the quick flow of money – but the quick outflow of wealth, when risk is up.

While Kenny and Eliot agree it's a new trading era with the online cross-border link in place – the simplest of all investment advice still holds true up to this day.

"I suggest investors to put about 20% stop loss. If the share price drop 20 percent I suggest they put a stop loss and wait and see," Tang said.

"Conceptual stocks such as those "shell stocks" and anything that has ramped high over their fundamental valuations are those that we urge clients to revisit their position," Li said.