Morgan Stanley upbeat on HK stocks

PUBLISHED : Monday, 21 May, 2012, 12:00am
UPDATED : Monday, 21 May, 2012, 12:00am


The correction in Hong Kong share prices has created buying opportunities and investors should be on the lookout for a possible upswing in the stock market - which could be in the cards once concerns over further debt defaults in Europe ease, says a top Asia equities banker at Morgan Stanley.

The Wall Street bank says it has a number of clients waiting to make initial public offerings and it expects to see more large deals coming out of Southeast Asia, following the last wave of big IPOs from China a few years ago.

'Right now, valuations are very reasonable,' said Vincent Chui, head of Asian equity distribution for Morgan Stanley.

'For example, H shares are valued at 7.5 times earnings, and 1.4 times book value. So the question is at what level you think the market will fully discount the worst-case scenario - and I will argue that current levels are very attractive for fundamental-driven investing,' Chui told the South China Morning Post.

The amount of global capital flowing into Asian markets recently had been relatively smaller than that going into the US and European markets, Chui said. But there were growing signs Western investors were ready to pour more money into Asia, because they were concerned about Europe and the slow economic recovery in the United States.

As part of its efforts to boost investor confidence in the Asian region, Morgan Stanley is hosting its largest in-house Asian market forum in Hong Kong this week. 'Investors have two major concerns,' Chui said. 'The first is global macro-contagion, particularly that originating from the euro zone; and the second is the implications of reforms in some key policy areas in China.'

Chui said political instability in Europe had created high volatility in global markets as some investors joined a panic selling wave and others hesitated to buy until they could form a clearer picture of how countries like Greece could get through the debt crisis.

'We live in a very challenging time from a political perspective. We tend to focus on the headline economic numbers, but ... it is the political news that is actually driving economic policies, and thus also driving the markets.

'What we need is the stabilisation of the political environment outside Asia. And on top of that, further progress on monetary easing, fiscal stimulation, and policy reforms in China would be helpful as well.'

The United States will follow France and Russia with its own elections this year, and China will also undergo a leadership change.

Many investors are concerned about whether China can maintain a strong rate of economic growth. The mainland's economic growth slowed to 8.1 per cent year on year in the first quarter, significantly lower than the 8.9 per cent growth rate recorded in the fourth quarter of last year.

Some analysts believe that Beijing may soon move to support economic growth by cutting interest rates, which would be a boost to its stock markets. On Friday, the People's Bank of China trimmed the reserve requirement ratio for banks by 50 basis points.

'Investor appetite for equities will recover. We always see that after bad cycles in the markets,' Chui said.


Where the Hang Seng China Enterprises Index stood at this time last year. It closed last week at 9,577