20 May 2019
Hong Kong has seen enhanced market volatility this year. Photo: Reuters
Hong Kong has seen enhanced market volatility this year. Photo: Reuters

Hong Kong equities: earnings gauges point to more upside

Global stock markets have been extremely volatile this year. The looming trade war between the United States and China, the Syria geopolitical crisis and other events all have contributed to enhanced market volatility.

A measure of Hong Kong’s market volatility spiked to 11.6 percent in January and 11.9 percent in February. By contrast, the gauge stayed below 5 percent for five months last year, then touched a record low of 2.1 percent in June last year.

The Vix index, a measure of US market volatility, surged above 15 percent for eight days during the first three months of this year. That’s double the figure for the entire 2017.

It shows that the volatility of both Hong Kong and global markets has increased considerably so far this year.

However, these events may only have a temporary impact on financial markets, and at some point, the markets will shift their focus back to fundamentals.

If so, are the earnings fundamentals of Hong Kong-listed companies supportive of another round of rally after the ongoing consolidation?

First, let’s take a look at the 12-month accumulative earnings per share (EPS). This number hit a historical high of HK$2,422 early this year, before falling back to HK$2,381, still at a relatively high level. Market outlook is highly positive, with analysts’ latest forecasts exceeding HK$2,875.

Based on positive alert ratio, things are also looking bright.

Hong Kong-listed firms issued 1,818 profit alerts last year. Of these, positive profit alerts accounted for 44 percent, the highest since 2010.

As of April, this ratio has further increased to 50 percent, close to the historical high of 51 percent in 2010.

Fundamentals hence appear to be rather constructive. Barring negative surprised from geopolitical or trade talk development, Hong Kong equities should be able to resume the rising trend.

This article appeared in the Hong Kong Economic Journal on April 17

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]


Hong Kong Economic Journal chief economist and strategist

EJI Weekly Newsletter

Please click here to unsubscribe