22 October 2016
The expanding use of smartphones will enhance the pricing power of telecom operators. Photo: Bloomberg
The expanding use of smartphones will enhance the pricing power of telecom operators. Photo: Bloomberg

How to bottom-hunt during a market correction

It’s hard to find an attractive place to invest amid terrorist attacks in France, a doubling of deposits for margin trading by Chinese stockbrokers, falling US consumer confidence and a sluggish economic recovery in Japan.

The Hang Seng Index tumbled to about 22,000 points Monday.

However, the terrorist attacks have limited real impact, affecting directly only the tourism, hotel, consumption and air travel sectors.

Various major central banks will engage in monetary easing to stabilize growth.

Investors should accumulate stocks at low prices and strictly cut losses.

Many investors who focus on short-term speculation have stayed away from the market, which shows it’s difficult to make profits in a range-bound market.

It’s extremely hard to profit from individual stocks or certain sectors, and investors who hold stocks overnight face unexpected risks.

From a technical perspective, the Hang Seng Index moved within expectations last week.

The Hong Kong market is likely to hover in the range of 20,368-23,423 points.

The index dropped to 21,958 points on Monday, close to a 50 percent retracement of a rally of 3,000 points.

Investors should be aware that the market has strong support at this level.

Many individual stocks have already tumbled to strong technical support levels, and investors can find an opportunity to accumulate stocks at current levels.

However, they should strictly take profit during each rebound and cut their losses if the Hang Seng Index falls below 21,800 points.

The terrorist attacks in Paris could weigh on economic growth in Germany and France, and the European Central Bank is more likely to ramp up its debt-purchasing program soon.

Meanwhile, Japan’s growth has lagged behind expectations for two straight quarters, and Japanese Prime Minister Shinzo Abe may unveil more stimulus measures.

China may also adopt different forms of targeted monetary easing, which may further defuse market expectations for a US rate hike.

And the global market will be mired in low interest rates and low growth.

Many countries will hold elections in the next one to two years.

Major central banks will place a top priority on maintaining stability.

Some old-economy firms may struggle to make profits, because of low growth and looming deflationary pressures, as well as geographical risks.

Big investors have plenty of excuses to short-sell the market.

And policy shifts would be the major factor affecting the Hong Kong and mainland market.

MSCI Inc. has included a dozen US-listed Chinese stocks in two of its benchmarks.

Hong Kong-listed Tencent Holdings (00700.HK) and China financial stocks will have less weighting in the indexes.

The overhaul of the benchmarks might cap the upside of the Hang Seng Index this month.

Hong Kong is undergoing low inflation or even deflationary pressures.

The city’s pillar industry, the property sector, has also started to level off as a result of the lackluster retail sector, which put pressure on commercial property rents.

Rents for residential property are also heading south, as a result of rising unemployment and stagnant wages.

The telecom sector is the top choice for medium-term investors who look for sectors with strong pricing power and offer a steady return.

The expanding use of smartphones will enhance the pricing power of telecom operators.

Hong Kong’s largest operator, HKT Group Holdings Ltd. (06823.HK), has introduced a data carry-over scheme for its customers to reduce capital investment and boost its average revenue per user.

Its rivals, like Hong Kong Broadband Network Ltd. (01310.HK), will also benefit, while PCCW Ltd. (00008.HK), which owns 60 percent of HKT, will benefit from the growth potential of its data center and future expansion into the over-the-top and paid TV businesses.

SmarTone Telecommunications Holdings Ltd. (06823.HK) and Hutchison Telecommunications Hong Kong Holdings Ltd. (00215.HK) are also attractive targets to accumulate at low levels.

This article appeared in the Hong Kong Economic Journal on Nov. 17.

Translation by Julie Zhu

[Chinese version中文版]

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columnist at the Hong Kong Economic Journal

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