The New Year stocks rally seems unstoppable. The benchmark indicator of Hong Kong stocks has been going up for four consecutive trading days on increased turnover. Analysts expect the gauge to break through the psychological 23,000-point barrier before taking a breather.

It seems investors have largely put behind them the negative factors that had weighed down share prices across the board late last year.

Unlikely as it may seem, property stocks are leading the charge, ignoring warnings of rising interest rates that could dampen demand and, more importantly, the prospect of an oversupply of new apartments that could depress the earnings of major developers.

On top of that is the lackluster economic scene that's showing no sign of improving. The nagging slowdown in exports growth and the persistent decline in retail sales could lead to falling wages and rising unemployment.

The only bright spot, if you can call it, is the strength of the Hong Kong dollar, which has been appreciating in tandem with the greenback against most other regional currencies. An appreciating currency is not necessarily a good thing because it has the effect of eroding Hong Kong's competitiveness against rival regional economies. But, the strong currency has been a magnet for overseas capital that has been widely credited for keeping local stocks and properties on the boil since the second quarter of last year.

Among the various stock-market sectors, utilities, as expected, is the only one that has been falling behind in the latest rally. The reasons are obvious. Investors normally buy utilities for their consistent dividend yields. But, the attraction is losing its shine as interest rates climb. The average dividend payout of utility stocks pales in comparison to bond yields which have surged sharply in recent weeks.

If you find property stocks too risky at current prices, your safest bet should be banks which stand to gain much from higher interest rates. But, if the property market tanks, as some analysts have warned, no one will be spared. Barring that, banks should do well.

(HK Edition 01/12/2017 page8)