As the global market is still flush with cash following nearly a decade of easy-money policy by major economies, a growing number of funds have targeted big caps.
Also, the number of billionaires has expanded rapidly over the last decade. And they tend to focus on stocks that offer stable returns with less volatility.
That’s why capital has been concentrated in heavyweight stocks in recent years.
Meanwhile, China’s pension funds are expected to enter the stock market after the Lunar New Year break.
Like other traditional long-term funds, pension funds would also prefer heavyweight stocks, and this explains the strong showing of China Life Insurance (02628.HK) and other insurance plays.
As such, big caps will probably continue to outperform small caps in the Hong Kong market.
The launch of the Shenzhen-Hong Kong Stock Connect last December is expected to lure more mainland retail investors into the Hong Kong market.
These investors tend to speculate on small companies, but worries about rampant manipulation of such stocks may deter them from buying.
Last week I recommended HSBC Holdings (00005.HK), Standard Chartered (02888.HK) and gold.
The first two have benefited from US President Donald Trump’s recent executive order relaxing financial regulation, including the Dodd-Frank reform act.
Hopefully, there will be more good news when HSBC releases its financial results on Feb. 20.
HSBC has been scaling back its presence in the US market. Still, the banking sector as a whole will benefit from the loosened regulation in the long term.
Trump’s plans to expand infrastructure and boost fiscal spending will also benefit banks.
This article appeared in the Hong Kong Economic Journal on Feb. 7
Translation by Julie Zhu
[Chinese version 中文版]
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