The Hang Seng Index is likely to extend its rally next month as the market has risen in July for the past 10 years.
Investors should pay attention to local financial and interest rate sensitive plays in the third quarter.
They should reduce their holdings of Chinese plays driven by policy and small caps that have relied heavily on mainland capital in the second quarter.
The Shanghai market has rallied 43.4 percent over the last six months, while Shenzhen market has surged nearly 95 percent.
However, foreign investors are still skeptical about China’s equity market. Hence, the Hong Kong market only rallied 15.7 percent during the period, while the Hang Seng China Enterprise Index rose less than 14 percent.
Investors should collect some property and high-dividend plays as the United States is likely to start raising interest rates in September.
Sun Hung Kai Properties (00016.HK), New World Development (00017.HK), Henderson Land Development (00012.HK) and Cheung Kong Property Holdings (01113.HK) are all attractive as these property plays have lagged behind for some time.
Some multinational companies may rebound once the Greek debt issue subsides. HSBC Holdings (00005.HK), AIA Group Ltd. (01299), Prudential Plc (02378.HK) and Manulife Financial Corp. (00945.HK) are worth considering.
A number of mainland internet technology plays listed in the United States are returning to the A-share market as more importance is attached to internet companies in the market, which could also boost Tencent Holdings (00700.HK) and some Chinese telecom stocks.
Investors should bet on new shares for short-term speculation given the ample liquidity and low interest rates. They should also focus on stocks that benefit from overseas markets and return to the A-share market after it goes through its current consolidation phase.
The annual talks between China and the US would touch on various economic and political issues. Any sign of a standoff on geopolitical issues would make military stocks attractive. Investors should collect these plays during a market correction.
New shares to cool mainland market
The mainland market has posted sharp rallies and slumps during the last six months. This highlights the fact that retail investors account for more than 80 percent of the market.
That’s why Beijing is keen to lure foreign institutional investors in a gradual and orderly manner.
The Hong Kong market has also gone through a similar period in the 1960s and 1970s. H shares have played a key role in linking the mainland market and global investors. We’ve seen the widening price gap of dual-listed A/H shares over last six months, in a sign that foreign funds and investors are playing a significant role in the market.
Beijing has adopted an approach of “crossing the river by feeling the stones” in forging a bull market.
The market has run up too quickly with the daily turnover soaring over 2 trillion yuan (US$322.15 billion) as a result of massive margin trading.
But the Shanghai market slumped 6.4 percent on June 19 and posted a weekly drop of 14 percent last week after the central government vowed to tighten margin trading and leveraging activities.
Meanwhile, as I mentioned before, the increased supply of new shares will cool off the red-hot market, which is actually a good thing in the long run.
This article appeared in the Hong Kong Economic Journal on June 23.
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]