HSBC Holdings (00005.HK) has posted disappointing results for 2016. That has stoked concerns about other heavyweight stocks. However, the composition of profit alerts issued by listed companies point to a relatively positive outlook.
There are two types of profit alerts — positive profit alert and negative profit alert.
Last year, Hong Kong-listed firms issued a record 1,700 profit alerts, according to data from the Hong Kong stock exchange.
The higher number largely reflects the increasing volume of listed firms and tighter regulatory requirements.
Out of the total, negative profit alerts accounted for up to 72 percent, a record high since 2012.
This figure alone might suggest the market outlook is quite negative, but not so if we look closer.
Most of these negative profit alerts were issued in the first half of last year. In fact, the three-month moving average of negative alerts touched a record high of 77 percent in June last year but tumbled to a 16-month low of 59 percent as of the end of January.
In other words, the three-month moving average of positive alerts soared above 40 percent last month from a trough of 23 percent.
Simply speaking, corporate earnings have shown improvement since second the half of last year, coinciding with the recovering global economy.
Using this profit alert ratio as a leading indicator, there is reason to believe Hong Kong equities are going to see brighter days ahead.
This article appeared in the Hong Kong Economic Journal on Feb. 22
Translation by Julie Zhu
[Chinese version 中文版]
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