Hong Kong has seen significant capital inflows as international investors sought out safe-havens and high-dividend plays amid an uncertain global macro environment.
As a result, REITs and some risk-off sectors have enjoyed robust gains.
However, the benchmark Hang Seng Index is still struggling to break the range of 19,600 and 21,600 points.
Monetary stimulus moves by major central banks have prevented the world economy from falling into recession or deflation.
But the 10-year US treasury yield remains near record-low, pointing to continued fears that the world economy will stay subdued.
It’s widely expected that central banks will pump more money into the system if there is any unexpected event.
In the meantime, investors should be wary of growing political uncertainties.
First of all, it’s still too early to determine the real impact of the Brexit vote. Leaders who had been in the “stay” camp have to now take up the job of negotiations with the EU on exit from the bloc.
The recent developments spell alarm in relation to other EU members, who may now also be contemplating leaving the EU.
Meanwhile in Asia, Prime Minister Shinzo Abe’s Liberal Democratic Party has won a sweeping victory in elections to Japan’s upper house, giving it a parliamentary supermajority.
With added political muscle, Abe could accelerate plans to revise the nation’s pacifist constitution, a move that could further strain ties with China.
Among other news, the US plans to deploy an advanced missile defense system in South Korea.
Various Southeast Asian nations have tried to defend their interests after China unveiled the “One Belt One Road” initiative.
Adding to the uncertainties related to China ties is the upcoming US presidential election.
Meanwhile, China is also set to see a reshuffle in some key posts this year and next.
All this makes for a complex macro political and economic environment, posing a challenge for investors.
When it comes to Chinese equities, investors should bet on sectors that enjoy government support, such as property plays.
Private home sales in China are expected to hit a new record this year, and many mainland developers have improved their debt structure by issuing more bonds onshore.
Agile Property (03383.HK), KWG Property (01813.HK), Evergrande Real Estate Group (03333.HK), Greentown China (03900.HK), China Overseas Land & Investment (00688.HK) and Sino-Ocean Group (03377.HK) are among the developers that appear to be good bets.
Elsewhere, Hong Kong retail stocks are likely to rebound as shoppers have returned to the city due to a stronger Japanese yen and a weaker yuan.
Reduced rental pressures on commercial property will also help retailers.
Investors can collect some stocks for medium-term investment, favoring names such as Sa Sa International (00178.HK), Luk Fook Holdings International (00590.HK), Chow Sang Sang Holdings International (00116.HK) and Chow Tai Fook Jewellery Group (01929.HK).
Among other sectors, Macau gaming stocks are good targets for seasonal speculation.
Apart from these, investors can also place bets on dual-listed firms that have significant disparity in their A- and H-share prices.
Angang Steel (00347.HK), Shandong Molong Petroleum Machinery (00568.HK), Zhejiang Shibao (01057.HK), Zoomlion Heavy Industry Science and Technology (01157.HK) and Hisense Kelon Electrical Holdings (00921.HK) are among the companies worth taking a look.
This article appeared in the Hong Kong Economic Journal on July 12.
Translation by Julie Zhu
[Chinese version 中文版]
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