With so many factors coming into play (macroeconomic data from China, quarterly earnings reports from the United States, Brexit, etc.), October is turning into a volatile month for equities.
But as far as fund flows are concerned, the outlook for Hong Kong equities remains positive.
Federal Reserve chair Janet Yellen talked about high-pressure economy in a recent conference, indicating that easy monetary policy will still be the mainstay in a low-growth situation.
This will provide a positive liquidity environment for stock markets including Hong Kong.
In the mean time, renminbi weakness may lead to more fund flows from China into Hong Kong.
In recent market pullbacks, previously outperforming sectors came under selling pressure, while several lagging sectors such as coal and cement strengthened.
This suggests that investors have been switching their holdings instead of leaving the market, which is a positive sign.
Market declines would therefore still be good buying opportunities. Key support levels for the benchmark Hang Seng Index are 23,000 and 22,000 points.
Tencent (00700.HK) as well as China banking and insurance plays are worth considering for accumulation on weakness.
Also interesting are infrastructure plays such as China Communications Construction (01800.HK) and China Railway Construction Group (01186.HK).
Investors looking for steady return can pick up Zhejiang Expressway (00576.HK), Yuexiu Transport Infrastructure (01052.HK) and Guangshen Railway (00525.HK).
This article appeared in the Hong Kong Economic Journal on Oct. 18.
Translation by Julie Zhu
[Chinese version 中文版]
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