Hong Kong and China markets have stabilized despite a lot of negative news in the world.
The markets may remain rangebound in the near term despite the expected inclusion of the renminbi in the International Monetary Fund’s SDR basket and the addition of some US-listed China stocks into the MSCI indexes.
Overall, capital may favor new-economy plays on the mainland.
As we head into 2016, investors will have to adjust their strategy in line with market movements and be wary of the latest economic and political developments across the world.
Record-low interest rates have increased market volatility as central banks kept on printing money in the recent past. Meanwhile, sluggish world growth has led a sharp fall in commodity prices, affecting investors in the sector.
It remains unclear whether these trends will stay in place in the future. The US dollar index has soared back to the 100 level amid the looming Fed liftoff.
Also, the inclusion of the Chinese yuan into the IMF’s currency basket and accelerated capital account liberalization by Beijing could become a game-changer.
Currently, various governments and central banks are struggling to stimulate growth, given heightened geopolitical risks. Some industries may regain their footing, but oil and other commodities are likely to hover near the bottom for a while.
China has been trying to guarantee growth and employment while addressing the industry overcapacity problem. Beijing intends to change the global economic landscape through the “One Belt One Road” strategy.
However, the initiatives could mean more uncertainties to the equity markets for some time.
Money has been flowing into new-economy sectors over the last couple of years amid increasing uncertainties. These stocks have the potential to outperform in the coming years.
One should bear in mind that the new-economy boom is changing people’s lives. The Internet has made shopping much more convenient, and social network platforms like Facebook have enabled people to connect and interact with each other more easily.
China is in the middle of an innovation boom, which has helped lure more venture capital and funds. The nation’s new OTC market and the upcoming “technology innovation” board in Shanghai are aimed at funding micro and small startup firms.
As China’s economy goes through a transition, new-economy stocks will be good bets for investors.
The government is also encouraging businesses such as new-energy vehicles in a bid to cut pollution.
The drive could benefit some auto parts suppliers and entities related to support infrastructure like batteries and charging facilities.
Investors can also look at firms involved in wind and solar power generation.
In the technology space, online shopping and other internet plus-relevant stocks, as well as a number of companies that count Alibaba or Tencent (00700.HK) as investors, are attractive.
Adapted from an article that appeared in the Hong Kong Economic Journal on Nov. 24.
Translation by Julie Zhu
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