The Hang Seng Index rebounded to 22,000 points last week but remained range-bound as investors unwound positions before the year ends.
Only mainland insurance stocks are likely to outperform and heavyweights have limited upside for the rest of the year.
By contrast, fund managers are expected to do some window dressing over the short term.
Many second and third-tier stocks posted sharp declines from their peak and some less favored plays saw heavy selling last month and early this month.
These stocks might show a strong uptick in the future but investors could bet on them before the year is out.
The market reacted emotionally to the Fed interest rate liftoff last week.
The news was received positively initially as it signaled a strong US economic recovery.
However, some South American countries, already struggling with cash outflows, saw heightened volatility.
The pace and timing of the US rate hike will continue to dominate the conversation next year.
Many domestic investors are looking to the central economic work conference from Dec. 18 to 21 for any policy support for the stock market.
Many companies have been trying to conclude equity deals.
China’s economic growth is expected to slow further and 2016 is set to be a challenging year.
Against that backdrop, the government might unveil more targeted policy to stimulate economic growth.
Still, mainland property stocks are some of the most attractive.
Battle for control
China Vanke Co. (02202.HK) and its biggest shareholder, Baoneng Group, have been wrestling over control of the company.
Vanke shares have been suspended since Baoneng announced an unsolicited takeover offer.
How would Baoneng work with China Resources Land (01109.HK), the second largest shareholder?
Will Vanke introduce more private equity funds or foreign investors?
These and other questions remain unanswered.
The weakening yuan might put developers with heavy external debt in deep trouble.
But smaller property stocks may have a big upside with Beijing set to further ease monetary policy and encourage rural migrants to buy homes in urban areas with tax incentives.
Meanwhile, mainland insurance stocks could outperform banking plays thanks to a stepped up equity and asset investment this year.
Ping An Insurance Group Co. of China (02318.HK), PICC Property & Casualty Co. (02328.HK) and China Life Insurance (02628.HK) are attractive for medium-term investment.
China Pacific Insurance Group Co. (02601.HK) is likely to shine in the first half of next year as fund managers switch from bank stocks to insurance counters.
Anbang Insurance Group has increased its stake in Xinjiang Goldwind Science & Technology Co. (02208.HK), China’s leading wind turbine manufacturer, to more than 10 percent.
Other mainland insurance companies may follow suit which could attract more hot money into the sector.
Pharmaceutical and healthcare stocks are attractive in the medium term.
Guangzhou Baiyunshan Pharmaceutical Holdings (00874.HK) may benefit from government efforts to promote traditional Chinese medicine.
China’s relaxed population policy which allows couples to have a second child, will boost certain stocks such as Tong Ren Tang Technologies (01666.HK), United Laboratories International Holdings (03933.HK), Sinopharm Group Co. (01099.HK), CSPC Pharmaceutical Group (01093.HK), Shanghai Fosun Pharmaceutical Group (02196.HK) and Shandong Weigao Group Medical Polymer (01066.HK).
This article appeared in the Hong Kong Economic Journal on Dec. 22.
Translation by Julie Zhu
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