The Hong Kong equity market is likely to see an upward trend next year, with stocks that are not sensitive to interest rate movements being the top picks as the US Federal Reserve is set to raise the benchmark interest rate, BlackRock said on Tuesday.
“There is a large component of the Hang Seng Index that is interest rate sensitive, particularly US interest rate sensitive. So depending on what happens in the US rate, it will determine the outcome for utilities, telecom and property stocks,” said Andrew Swan, head of Asian equities at the New York-based investment management firm.
So for Hong Kong, the company recommends non-interest rate sensitive stocks and those that offer unique growth exposure, he said.
Swan sees Asian companies recording high single digit growth in earnings and the equity market posting higher returns next year.
“We are finally moving from an environment of very tight financial conditions and tight monetary conditions in Asia, which have persisted for several years, to a period in which we see selective easing across the region, which is normally good for growth and therefore good for equity returns,” he said.
In China, Swan said there is now a brighter investor sentiment, although the ongoing reforms will continue to weigh on economic growth in the short term.
“It seems there is a shift in sentiment among mainland investors, and it is probably around two issues. One is a turn in the monetary cycle and two, increasing belief that reform will improve the medium and long-term growth outlook,” he said.
Joel Kim, head of Asia-Pacific fixed income at BlackRock, also expects the region to benefit from lower commodity prices and thus lower inflation.
Asia continues to look attractive relative to other emerging markets given its strong macro picture, positive reform stories and room for easing policies, Kim said.
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