The Hang Seng Index tumbled to a low of 18,534 points last week amid worries over China’s economic slowdown, slide in global oil prices and corporate earnings concerns.
Some medium-term conservative investors who bought shares at support level last week could consider waiting a while before seeking an exit.
Overall, the market is likely to be volatile in the current quarter.
Investors should take profit at resistance levels such as 20,000 and 20,400 points on the benchmark index. If the market fails to move above 20,400, investors should sell during any uptick and even consider taking short positions.
If the benchmark manages to break over 21,000 and 21,600 points, investors should add some new-economy plays, as I suggested last week.
As for cautious investors, they should sell shares at around 20,000 points, and come back if the market rebound beats expectation.
However, they should stay agile in the near future as the market is not yet ready for all-in investment. Foreign funds are unlikely to return to the Hong Kong market in the first quarter.
The stance of major central banks will determine capital flows in the short term. If market expectations for US Fed rate hikes ease, it will help stabilize the global markets.
Also, if the Japanese central bank launches another round of monetary easing measures, it will alleviate pressure on Hong Kong and other emerging markets.
As for China, its central bank has mitigated market expectation for further yuan depreciation. That should help stabilize capital outflow and equity markets in Hong Kong and the mainland.
Beijing has shifted its exchange rate focus to a basket of currencies, and intends to beef up trading competitiveness through modest depreciation.
Many companies are exposed to foreign currency risks amid slower economic growth, which would drag on their ROE and P/E in the new earnings season. It remains unclear whether these factors have already been fully priced in current valuations.
Investors can take advantage of panic-selling to collect select old-economy stocks, including some steel and coal plays.
Attractive stocks include China Coal Energy (01898.HK), Maanshan Iron & Steel Co. (00323.HK), Angang Steel Co. (00347.HK), as well as the top three Chinese oil firms which will benefit from oil price rebound.
Policy incentives for the new economy sector will continue to dominate market theme in the medium and long term. Investors should collect some leading players during market correction, such as Tencent Holdings (00700.HK), China Mobile (00941.HK) and Lenovo Group (00992.HK), as well as some firms that rely on overseas markets.
Meanwhile, investors can also pick some stocks relevant to the “One Belt One Road” strategy after the earnings season.
Among others, pharmaceutical, Internet-plus, new energy and environmental protection plays will be attractive bets for medium-term investment.
This article appeared in the Hong Kong Economic Journal on Jan. 26.
Translation by Julie Zhu
[Chinese version 中文版]
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