The Hang Seng Index staged a modest rebound in September and we saw profit-taking in October. The benchmark is likely to hover in the range of 20,500 to 23,500 points for the rest of the year.
Meanwhile, renminbi saw huge volatility against the US dollar in the last two trading sessions at the end of the quarter end amid expectations that the Chinese currency will be included in the International Monetary Fund’s special drawing rights (SDR) basket.
The redback has remained strong despite the double-barreled easing shot by the People’s Bank of China, as the market expects some central banks to increase their yuan holdings after the currency is included in the SDR basket.
In fact, the Chinese central bank has adopted launched several reforms to pave the way for the renminbi’s inclusion in the SDR basket.
More monetary easing is expected to stimulate China’s economic growth and encourage more foreign investors to hold renminbi bonds.
We’ve seen increasing capital inflow into Hong Kong in light of the reduced risk for yuan depreciation. Also, some investors have switched to renminbi bonds after exiting from A shares as they await for clues from the Hong Kong and mainland equity markets.
Beijing intends to build a more prosperous and caring society under the 13th Five-Year Plan.
This will drive domestic consumption sectors, including environmental protection, new energy, biochemistry, entertainment, media, sports and tourism.
There are many attractive plays in the A-share market that will benefit from the new economy.
However, investors are wary of industrial cycles, limited transparency and rampant market speculation.
Foreign funds have limited interest in boosting their holdings of China and Hong Kong equities.
As such, both markets will see heightened volatility amid the economic restructuring.
Investors will focus on sectors or individual stocks that may outperform in the short term amid a range-bound market. They should focus on stocks relating to the online shopping festival on Nov. 11; such stocks may outperform.
Consumption goods like home appliances are facing excessive supply, and manufacturers will take advantage of the shopping festival to reduce their inventory by launching big sales to mark the occasion.
Shopping malls, online shopping, logistics and home appliance manufacturers are all likely to outperform in the near term.
GOME (0493.HK) and Intime Retail (Group) (01833.HK) will benefit from the online shopping boom, and so will home appliances stocks such Haier Electronics Group (01169.HK) and TCL Multimedia (01070.HK).
Some sportswear plays such as Anta Sports (02020.HK), Li Ning (02331.HK) and Xtep International Holdings (01368.HK) also stand to gain from the festival.
Investors can also look at some logistics stocks like China South City Holdings (01668.HK), Guangdong Yueyun Transportation (03399.HK) and SITC International Holdings (01308.HK).
However, they should only take short-term bets on these stocks as one shopping festival won’t have sustainable benefits for a company in the long run.
The second-child policy will ease China’s aging population, in particular the labor shortage in rural areas and lower-tier cities.
The new rule is estimated to bring more than 100 billion yuan (US$15.8 billion) of consumption every year, covering various sectors including property, healthcare, automobiles, education, food, baby clothing, toys, etc.
This article appeared in the Hong Kong Economic Journal on Nov. 3.
Translation by Julie Zhu
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