Date
26 July 2017
Hong Kong's stock market is expected to see more capital inflows due to global monetary easing moves and a new cross-border bourse link. Photo: Bloomberg
Hong Kong's stock market is expected to see more capital inflows due to global monetary easing moves and a new cross-border bourse link. Photo: Bloomberg

Why Hong Kong stocks still have more upside

Following news of approval of the Shenzhen-Hong Kong Stock Connect program, Hong Kong’s benchmark Hang Seng Index traded as high 23,193 points last week with market turnover soaring to nearly HK$90 billion.

With pressure building up for profit-taking, we could see some pullback now.

That said, the outlook for equities remains positive and the market could see further upside over the long run as the stock link scheme will keep attracting investors.

Apart from the cross-border bourse link, the Hong Kong market will also continue to benefit from monetary easing activities around the world.

In fact among the global markets, there are few better investment alternatives.

Uncertainty from Brexit and doubts over the future of the European Union may continue to prompt investors to pull out money from Europe, benefiting places such as Hong Kong.

Having hit record highs repeatedly, the US market is becoming less attractive for investors.

As for Japan, economic reforms in that country have yielded little result so far.

Comparatively, China is likely to maintain GDP growth in the range of 6 to 7 percent. Though the country is grappling with a difficult economic restructuring process, Beijing will not abandon the reforms.

As the pace of depreciation of the Chinese yuan has slowed down, and given the attraction of the new stock connect scheme, Chinese stocks may again draw the interest of global investors.

I’ve talked about the 10-year-cycle theory before. Historically, the Hong Kong market posted good gains in years ended with a “6″, like 1976, 1986, 1996 and 2006. Now, 2016 might also throw up similar result.

Market participants will now keep a close eye on the US Federal Reserve’s Jackson Hole meeting later this week, as well as some upcoming economic data. Short-term selling pressure could come from that front.

Positioning for a strong fourth quarter, banking and property plays are some of the stocks worth watching.

With the half-year results of China Merchants Bank (03968.HK) showing improvements in its non-performing loans problem, banking shares could become popular investment targets.

Elsewhere, successful destocking has enabled many mainland property developers to improve on their financials, making them more attractive to investors.

This article appeared in the Hong Kong Economic Journal on Aug. 23.

Translation by Julie zhu with additional reporting

[Chinese version 中文版]

– Contact us at [email protected]

RC

columnist at the Hong Kong Economic Journal

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