HK stocks end 5-day losing streak
Analysts expect Hang Seng Index to stay volatile during first six months
The Hong Kong Stock Exchange broke out of its downward trend with the benchmark Hang Seng Index gaining 0.42 percent on Thursday, ending a five-day losing run. Analysts said the market’s growth momentum will ease in 2018, with the index remaining volatile in the first half of the year.
“The market has not bottomed out yet, and if we look at global markets, such as the Dow Jones Industrial Average and the A-share market, they have already fallen below last year’s closing prices, so there’s the possibility that the Hong Kong market will move towards the 29,919 level, which was last year’s closing,” First Shanghai Securities chief strategist Linus Yip Sheung-chi said.
Following an equity sell-off in the United States, Asian stock markets fell drastically this week. The Hang Seng Index recorded five consecutive days of losses, with a 6.6 percent loss recorded for this week until Thursday.
... so there’s the possibility that the Hong Kong market will move towards the 29,919 level ...” Linus Yip Sheung-chi chief strategist at First Shanghai Securities
Yip said he believes the upward momentum of the Hang Seng Index, which lasted for the whole of 2017, appears to be losing steam this year, and the market will continue to fluctuate in the first half.
“If the Hang Seng Index can struggle above 28,000 in the first half, the market will remain bullish in the second half, but not as strong as what we saw in 2017.”
Global asset manager Fidelity International said the sell-off in equities is driven by technical factors, not by fundamentals, as overall economic growth and corporate earnings remain robust.
Catherine Yeung, investment director at Fidelity International, urged investors to take a longer-term perspective.
“If we step back and look at a broader view, Asian equities are still mostly higher, and via southbound trading via the Stock Connect, Hong Kong equities are holding up relatively well. As a long-term and bottom-up investor, we are mindful that the current selloff is more systematic driven versus fundamental,” she said.
The southbound flow along the Stock Connect, which links the mainland and Hong Kong bourses, has accelerated sharply since the middle of January, leading to expectations that mainland inflows could cushion the losses on the Hong Kong Stock Exchange, especially China-related stocks. But according to a report released by Bank of America Merrill Lynch on Feb 7, southbound inflows only account for 6 to 7 percent of the Hong Kong market’s turnover, so it’s still too small a factor to decide the market direction.
“Our analysis shows that the predominant driver of southbound flow is EM (emerging market) market performance, rather than valuation or currency consideration. If this is true, inflows should ease considerably soon if EM market starts to weaken,” the report said.