The benchmark Hang Seng Index has been range-bound this month, with the weakening renminbi being a market focus.
While it is hard to tell if the US dollar index is going to break out of its range and rise beyond the key level of 100, its strength will continue to favor dollar assets.
That also holds true for Hong Kong equities, given the currency peg.
Yuan weakness may also trigger more mainland fund flows into the Hong Kong market. At least funds already in Hong Kong are unlikely to leave any time soon.
Blue chips such as Tencent (00700.HK), HSBC (00005.HK) and HKEx (00388.HK), Chinese banks and insurance plays have been the main beneficiaries of fund inflows.
Now that they have already gone up quite a bit, attention could shift to lagging counters.
On the back of strong sales, carmakers have shown signs of strength recently.
Meanwhile, the recovery of oil prices has boosted shares of oil producers like PetroChina (00857.HK).
In fact, quite a lot of other cyclical stocks still hover near the bottom amid lackluster global growth.
These are all possible targets for investors looking to switch their holdings to cheaper sectors.
Seasonal factors and supply-side reform have helped coal stocks stage a rebound.
Shares like China Shenhua Energy (01088.HK), Yanzhou Coal Mining (01171.HK) and China Coal Energy (01898.HK) may continue to draw short-term buying interest.
A number of cement and construction plays that will benefit from public–private partnership in China like China Communications Construction (01800.HK) and China Railway Construction Corp. (01186.HK) may also become speculation targets.
Lastly, industrial plays that are going to benefit from a weaker yuan may do well too.
This article appeared in the Hong Kong Economic Journal on Oct. 25.
Translation by Julie Zhu
[Chinese version 中文版]
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