After sliding precariously for several months, Hong Kong’s stock market appeared to have regained ground last week, raising hopes that the bears have finally run their course.
In the past few trading days, the Hang Seng Index had managed to stage a smart rebound on increased daily turnover. Stock analysts, however, are still cautious in making predictions, but they agree that the price adjustments made in the past months amid a spate of bearish news are largely over.
The market, they say, has largely discounted the uncertainties over US interest rates. The US Federal Reserve’s decision to delay a rate hike at its meeting last month has sparked fears that the global economy is worse than predicted. Since then, global equity markets have largely recovered from a selloff despite lingering concerns.
It’s widely believed the Fed will raise rates before the end of the year. Such an increase is good for banks as it provides room for them to widen their profit margin, or spread, in their lending business.
The local stock market has also been troubled by forecasts by some analysts of an impending fall in property prices, basing their prognosis largely on the drop in transactions in the secondary-homes market over the past few months. This was seen to have contributed to the recent mini market crash.
Despite the dire predictions, real-estate prices in all market segments have held firm. There aren’t signs yet that homes owners are in a rush to sell, while demand, especially for smaller apartments, has remained high, as demonstrated by the big rush by prospective buyers for the latest batch of government-built flats.
Since early this year, investor sentiment has been depressed by largely exaggerated talk about the possible collapse of the tourism industry as visitor arrivals, particularly from the Chinese mainland, continue to shrink. Some shops, mainly drug stores that cater exclusively to mainland visitors, have pulled down the shutters, dragging down rentals of retail premises in several busy commercial districts.
However, domestic consumption has stayed robust, boosted by strong demand from workers which, in turn, has pushed up average wages. After all, tourism income accounts for less than 5 percent of Hong Kong’s total economic output.
At current prices, Hong Kong shares are trading at an average multiple of under 10 times, which is low for an economy that is set to grow by 2 percent to 4 percent annually in the coming years. The downside of buying shares now seems limited.
This may be the time for some serious bargain hunting.
Hong Kong shares are traded at an average multiple of under 10 times, which is low for an economy that is set to grow by 2 percent to 4 percent annually.