Market gains hinge on proof of recovery
Hong Kong's stock market has roared back to life in anticipation of a regional economic recovery, but further gains would now depend on proof the turnaround was taking shape, several brokerages said yesterday.
The Hang Seng Index reclaimed the key 18,000-point level yesterday for the first time in almost two weeks, climbing 372.93 points or 2.09 per cent to 18,258.66.
Buying interest was buoyed by expectations the mainland would announce today that economic growth had picked up in the second quarter. Investors also cheered Tuesday's news that Goldman Sachs' quarterly earnings exceeded expectations.
'Since June, we have seen some correction and [are] now in some consolidation phase,' said Grace Tam, a vice-president of investment services at JP Morgan Asset Management.
'The next leg for the market to go up will be the earnings results, [because] if we really see some sales expansion in company results, it could be very positive for the market.'
The Hang Seng Index has climbed 26.91 per cent this year but hit a wall after valuations surged to the highest in 18 months. The benchmark has edged up just 0.48 per cent since the beginning of June, and trading turnover has dipped as investors wait for better economic data to justify higher market prices.
Expectations are mounting that upcoming corporate earnings from the mainland and across the Pacific will show improvement and give the market a boost.
Tony Tong, a deputy head of research at China Everbright Research, expected second-quarter results from mainland companies to start an uptrend as the domestic economy picked up steam.
'Provided 8 per cent [economic] growth can be maintained, we project earnings of China enterprises will start to recover strongly from the second quarter,' Mr Tong said. 'Moreover, given ample liquidity, we see upward bias in the stock market.'
The brokerage raised its year-end target for the Hang Seng Index to 20,000 points from 17,800 to reflect its expectations of strong second-half economic growth on the mainland.
Sun Hung Kai Financial also forecast yesterday that the Hong Kong stock market would improve this year as the mainland economic recovery gained traction. The brokerage cited fair-value targets for the Hang Seng Index and the H-share index at 21,000 and 12,800 respectively, up from previous estimates.
'Market sentiment is likely to be improved in the second half, as Hong Kong will benefit from the global recovery and the mainland economic growth,' said Joseph Tong Tang, the chief executive of Sun Hung Kai.
The firm expected mainland financial, industrial, and infrastructure-related stocks to outperform the market in the second half. These sectors are expected to benefit as the government attempts to boost domestic consumption levels.
Despite mounting hopes for a near-term revival in the mainland economy, concerns still persist about the long-term impact of the drop-off in exports.
'The negative point for China is that if you compare growth today and growth two years ago, the quality of economic growth has very strongly deteriorated,' Sebastien Barbe, head of emerging market research and strategy at Calyon, said earlier this month. 'In the next few years, we won't come back to double-digit [economic] growth.'
