Mainland small caps seen to make big leaps in 2012
Investments in mainland small-cap stocks could be unexpectedly rewarding this year after dropping 38 per cent in 2011, analysts said.
Macquarie Securities said in a report that mainland small caps were set to perform strongly this year, with favourable conditions expected from credit loosening. Firms with small market capitalisation bore the brunt of Beijing's credit-tightening policies last year as borrowing costs shot up.
Some mainland firms, heavily shorted going into accounting season in March, will be lifted by immediate short covering when their corporate governance proves to be sound.
Kenny Lau, head of small cap research for Asia ex-Japan at Credit Suisse, said the hardest-hit sectors - including industrials, exports, information technology, materials and transportation - could outperform this year when the market recovers.
He said these sectors had already priced in market uncertainty and could only perform more solidly.
Hong Kong property stocks have already priced in the anticipated fall in property prices this year and things may only get better, according to Hong Kong research head Cusson Leung at Credit Suisse.
Lau said industrial stocks with heavy US exposure, such as Johnson Electric, which provides motors and motion subsystems to US and Europe, to fare well against the odds of a weak American economy and concerns about export decline.
But domestic consumer stocks in Hong Kong, which outperformed the stock market last year, were not among the Credit Suisse analysts' top stock options. They said strong retail sale growth in the sector over the last few years was unlikely to be sustainable, and any small dip in growth could trigger a fresh round of selling.
Leung's picks include infrastructure giants Cheung Kong and Hutchison Whampoa, which have strong balance sheets and diversified businesses.
But he says the property sector might see a rebound in stock prices when property prices in Hong Kong fall significantly.
Leung expects the Hang Seng Index to reach 21,800 this year. The index closed at 199942.95 yesterday, up 1.3 per cent as it rose for the third consecutive day.
