Situations like this are often a bad omen…
They tend to happen when things are getting worse in the market. So when you see the setup we’re seeing today, you typically want to step aside.
The protests in Hong Kong have been going on for months. They’ve turned more violent as time has passed. And it’s caused a few major falls in Hong Kong’s stock market this year.
Hong Kong stocks recently fell for 10 days in a row. That’s a rare situation. Most of the time, it would be bad news… but surprisingly, not in the case of Hong Kong.
History says it could actually lead to a 21% rally over the next year.
Let me explain…
Hong Kong stocks have fallen sharply in recent weeks. And after stringing together several down-days, this foreign market is giving us an opportunity to buy.
That’s because this is an odd case. Consecutive down-days normally highlight an accelerating trend…
If a stock is rising, then consecutive up-days can mean strong outperformance is ahead. And if a stock is falling, then a run of several down-days generally signals that more losses are coming.
That’s how it usually works. But it’s NOT how it works in Hong Kong.
To prove it, I looked at more than 20 years of data. And more than 90% of the time, similar situations led to positive returns over the next year.
We’ll get to the numbers in a moment. But first, take a look at the recent string of down-days in the chart below…
This was a brutal couple of weeks for Hong Kong stocks. They fell every day for nearly two weeks straight at the end of September. And the total decline was a quick 7% loss.
Again, this would normally be a bad sign. But not for Hong Kong stocks. Historically, this type of fall has actually been positive for this market.
More than two decades of data point to real outperformance after instances like this. Take a look…
Hong Kong stocks have barely eked out a positive return since 1996… returning just 1.7% a year. But buying after situations like we just saw has led to incredible outperformance.
Similar instances led to 5% gains in three months, 12% gains in six months, and a massive 21% gain over the next year. Those are solid returns any way you slice it.
Now, I can’t recommend you put new money to work in the face of a downtrend. There’s no need to try and catch a falling knife.
But when the uptrend returns, history says 21% gains are possible in this beaten-down market. And that means despite the scary headlines, Hong Kong is a market you should be ready to buy soon.
Good investing,
Chris Igou
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Source: Daily Wealth