Benefiting from stabilising Chinese economy, Hong Kong shares lead global stock markets to rally this year - up over 10 per cent altogether so far, showing a strong going-up tendency. But traditionally, there is a saying about Hong Kong shares:"May is for poverty, June for desperation, and July for upturn". This means entering the month of May, the rallying tendency may change. In fact, a number of uncertain factors are dragging down Hong Kong shares.　　In particular, changes in global politics and economy are hardly predictable, so black swans could come at any moment. Investors must not let their guard down.

　　The seemingly good global economy is worrisome.Growth of the U. S. economy in the first quarter unexpectedly rather weak, indicating there is still downturn risks in Western economies. This serves a timely warning to the global stock markets that have kept setting record highs recently.　　Among others, the movement of American shares is the most risky, which may take a sharp downturn.　　On the Mainland, supervision authorities are strengthening crackdown on　　financial irregularities, in cooperation with efforts to de-leverage and prevent financial risks.　　This is favourable for the mid- and long-term healthy development of the A-share market.　　But it is inevitable for the market to fluctuate because of this, which will restrict growth of Hong Kong shares.　　Surely there are undercurrents in the May, the month for poverty.

　　As a matter of fact, the whole world is facing such dangers as a change in loose monetary policy, growing protectionist sentiment in trade, and geopolitical tensions.　　Right now, the world economy can hardly be said to be bottoming out.　　It cannot be ruled out that there will be economic ups and downs, which may affect the movement of Hong Kong shares and global stock markets as well.

　　The International Monetary Fund (IMF) has recently raised its forecast of the growth of world economy by 0.1 percentage point to 3.5 per cent. This by no means suggests world economy has walked out of the shadow.　　Among other things,　　policies of the United States remain the source of global economic risks.　　Besides possible speeding-up of interest rate hikes and the Fed's consideration to reduce the size of its balance sheet, U. S. President Donald Trump　　 has just tabled a proposal for biggest tax cut in history.　　This prompts the worry that the Fed may heavy-handedly raise interest rates to prevent inflation running out of control.　　In that case, American bonds and shares will bear the brunt, which is bound to cause another round of turbulence in global financial market.

　　In fact, the U. S. economy grew 0.7 per cent in the first quarter, the slowest in three years and 1.4 percentage points less than the 2.1 per cent growth in the fourth quarter of last year. This has a lot to do with the remarkable slowdown in consumer spending.　　Concern arises that this may shake market confidence in Trump's efforts to revitalise the economy, hurting consumers' desire to spending.

　　More importantly, higher U. S. interest rates will increase borrowing costs, which is　　unfavourable for consumers to increase spending.　　No wonder Trump has to hastily table his proposal for massive tax cut, so as to support the economy which becomes weakening again.

　　What is unnerving is that, while the U. S. economy is in bad shape, inflation is gradually heating up.　　While energy price is on the rise, labour cost is also going up rapidly.　　U. S. Employment Cost Index (ECI) grew 0.8 per cent in the first quarter, the largest growth in a decade.　　This is meant labour cost and energy price are pushing up inflation in the United States.

　　If Trump's tax cut proposal is put into practice, inflation will jump even more quickly.　　This may prompt the Fed, which stresses on its independence [of the administration], to sharply increase interest rates, far higher than market expectation.　　Then prices of assets such as shares, bonds and property will suffer.

　　American economy slows down again, which highlights the risk of a global economic downturn.　　 Trump's anti-globalisation policies and his advocate for trade protectionism remain a big threat to global economy.　　For instance, Washington's unfair sanction on Canada's softwood industry may trigger a trade war at any moment, which in turn will affect global stock market.

　　As U. S. interest rates and trade policy are big variables, there can hardly peace in world economy.　　 Enormous risks are hidden in global stock markets.　　In particular, the risk of interest rate hikes must not be under-estimated.　　The world must speed up the pace of de-leveraging so as to guard against systemic financial risks.

2 May 2017