After rallying 3,000 points over the last two months, Hong Kong’s benchmark Hang Seng index is expected to stay in the range of 21,800 and 23,400 points in September.
Given the positive outlook, the consolidation phase may present a good chance for investors to accumulate shares before the next rally starts.
Fed rate hike chatter could lead to some short-term volatility and buying opportunities. Currently, traders are pricing in 42 percent probability of a rate move next month.
In the longer term, capital inflow from China under the Stock Connect program, in particular the upcoming Shenzhen-Hong Kong bourse link, may continue to boost the Hong Kong market.
Hopes of A shares’ inclusion into the MSCI index will also be a supportive factor.
In terms of specific shares, investors can look for some second and third-tier stocks that are likely to benefit from the Shenzhen bourse link program.
Shenzhen-based companies with market cap of around 5 billion yuan are attractive targets.
Companies having well-known brands in China are also worth watching. The list includes China Zheng Tong Auto Services (01728.HK), Coolpad Group (02369.HK), Poly Property (00119.HK) and Kingdee International Software (002680.HK).
Counters that foreign investors like are also interesting buying targets. Among these are Hang Seng Investment Index Funds Series – H-Share Index ETF (02828.HK) and some heavyweight Chinese financial firms.
The Hang Seng H-share ETF tracks the China Enterprise Index, which has rallied 4.32 percent so far this year, with a P/E ratio of 8.5 times. By contrast, the Hang Seng Index has gained 6 percent and involves a P/E ratio of 12 times. This implies room for the former to catch up.
Among other recommendations, Tech firms like Tencent (00700.HK) and AAC Technologies Holdings (02018.HK), as well as auto firms, are also expected to do well.
This article appeared in the Hong Kong Economic Journal on Aug. 30.
Translation by Julie Zhu
[Chinese version 中文版]
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