Un­der­val­ued stocks in focus as in­vestors seek right bet

China Daily (Canada) - - HONG KONG -

It’s un­de­ni­able that a lot of smart money is float­ing around in Hong Kong’s cap­i­tal mar­ket. In hind­sight, the sell-off of lo­cal stocks late last year and the sub­se­quent cap­i­tal flight were fully jus­ti­fied by the eco­nomic down­turn, ac­com­pa­nied by the prop­erty sec­tor’s cycli­cal ad­just­ment, which took av­er­age home prices down more than 20 per­cent from their peak in mid-2015.

There are now signs that the eco­nomic slow­down will not de­te­ri­o­rate into a full-scale re­ces­sion, and the real es­tate down­cy­cle is about to run its course. The un­em­ploy­ment rate may rise slightly in the com­ing months as the re­tail sec­tor has yet to re­gain its foot­ing. But the con­struc­tion boom has con­tin­ued, thanks largely to the abun­dance of in­fra­struc­ture pro­jects, in­clud­ing the HK$141.5 bil­lion third run­way at Hong Kong International Air­port.

Mean­while, oil prices have surged past $50 a bar­rel, which is widely con­sid­ered to be a key mile­stone for oil pro­duc­ers and the industry it­self in try­ing to get out of the dol­drums of the past few years. The price rise, with­out the need for pro­duc­tion cuts, was an in­di­ca­tion of the grow­ing de­mand from the world’s ma­jor oil con­sumers, in­clud­ing the United States and the Chi­nese main­land.

The per­for­mance of the US econ­omy, in­deed, is seen as solid enough to prompt the Fed­eral Re­serve to sig­nal a strong pos­si­bil­ity of an­other interest rate hike this sum­mer.

In Hong Kong, many eco­nomic an­a­lysts seem to have ig­nored the lat­est de­vel­op­ments and con­tinue to harp on the mourn­ful tune of eco­nomic woes. As they per­sist with their pes­simistic mood, the stock mar­ket has staged a smart rally in the past sev­eral weeks.

The ques­tion now is not whether the smart money will re­turn to the lo­cal bourse but how large the flow is. The in­crease in mar­ket turnover tells only part of the story. There is a vast ar­ray of se­cu­ri­ties­based de­riv­a­tive prod­ucts that al­low suave in­vestors to max­i­mize their prof­its if they place the right bet.

Based on the share price move­ments of in­di­vid­ual stocks, the bank­ing and en­ergy sec­tors are lead­ing the pack in the rally. In­vestors are not dump­ing de­fen­sive stocks, but are go­ing after the un­der­val­ued prop­erty de­vel­op­ers and trad­ing com­pa­nies.


Re­cent signs in­di­cate that Hong Kong’s real es­tate down­cy­cle is about to run its course, and that the eco­nomic slow­down will not de­te­ri­o­rate into a full-scale re­ces­sion.

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