The risk of stagflation, which has plagued markets for some time, does not appear to have morphed into a new panic. The Federal Reserve signaled the start of the taper, the U.S. 10-year bond yield has risen, and economic growth in both the United States and China has indeed shown signs of slowing. When oil, gas and commodity prices are rising, the inflation gloom will not go away. However, entering the fourth quarter, the US stock market, Bitcoin and other risk assets have broken the level, and Hong Kong's technology index has more energy to bottom out. These phenomena seem to give shield, but as long as the market is full of funds, the demand for chasing investment returns at the end of the year is still very large, if there is a good excuse, the market will naturally stir up.

Memories of stagflation are from the 1980s, when wars in the Middle East and oil shocks triggered global inflation and recession at the same time, and this scenario is the worst for stocks. However, unlike in the past, the world's major central banks have responded to economic crises with unconventional monetary policies, namely massive liquidity releases, to stabilize growth, so a sustained recession is less likely than in the past, or at worst, almost no growth.

As for inflation, the post-pandemic economic restart has led to an explosion in manufacturing, investment and consumer demand, as well as the unique problem of supply chain bottlenecks, which have led to a marked spike in prices in the resources, commodities and transport sectors, thus raising the specter of inflation. If inflation really did get out of control, the ultra-sensitive bond market would be the first to react, with long bond yields bound to rise sharply and financial markets in turmoil. It is clear that financial market experts and big players do not agree that sustained inflation, even the expectation of hyperinflation, is a threat to the market, so the stock and bond markets are only briefly volatile, and soon they are chasing returns again.

As a result, the logic that dominates financial markets has returned to corporate performance. The US economy has gradually restarted, and the latest quarterly earnings show that growth momentum is still maintained, and risk appetite has recovered. As for the Federal Reserve's water collection actions, their negative impact is often exaggerated by the media. The truth is that as long as the economy maintains moderate growth, orderly water harvesting is not a fatal blow to the market, as evidenced by the water harvesting in 2016-17, when the stock market instead climbed the ladder. Investors have experience, so this time the Federal Reserve proposed a more clear path to collect water, the market as a positive, but gradually upward.

As for the Hang Seng Technology Index, after nearly nine months of adjustment, it seems that it has entered a new corner, mainly because the rectification of the Mainland's technology industry has come to an end. The latest official position also reaffirms the important role of the digital economy such as the Internet, big data, cloud computing, artificial intelligence, and blockchain in promoting continuous economic development. It is estimated that under the new regulatory framework, platform technology stocks can adapt and find new sources of growth, coupled with the valuation of leading enterprises has been depressed to a low level, market funds including long-term funds (such as Munger) also see the potential value of Hong Kong platform stocks, and will flow to the technology sector again.

After this year's policy-oriented adjustment, the valuation gap between Hong Kong net stocks and similar shares in the United States has widened. When policy risks weaken, it is the time for valuation repair, and now is the opportunity. It is expected that the low technology stocks will usher in a rebound market in the fourth quarter.

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