Hong Kong and Chinese stock markets: technology stocks lead winners but gaming stocks headline losers in 2015
Uncertainty clouds picture in Chinese markets going into 2016
It was a turbulent year on Hong Kong and China stock markets as slowing mainland growth and global trade combined with tumbling commodity prices to buffet equities, although some sectors such as technology emerged stronger.
“The Chinese equity market had an intense year, to say the least,” said Gerry Alfonso, a director at Shenwan Hongyuan Group in Shanghai. “After all the ups and downs it seems that the market is now finally normalising, which is clearly a good development.”
Technology stocks emerged as big winners this year, propelling the Shenzhen Composite Index up more than 60 per cent and pushing the NASDAQ-style ChiNext Price Index to almost double its opening value. In Hong Kong, Tencent Holdings gained around a third and was consistently among the most heavily traded stocks.
“The business prospects of IT companies in China remain incredibly strong with many of those companies in full expansion. The sector also has the support from the authorities and that’s a pretty powerful combination,” Alfonso said.
“New China” industries including technology, healthcare and consumer discretionary are set to continue outperforming “old China” enterprises like energy, industrials and materials, say analysts at Morgan Stanley and BlackRock Investment Institute.
The strong performance of the IT sector came as the Hang Seng Index will finish the year almost 2,000 points down, having opened on 23,605 and peaked above 28,000 when a rally lifted the market to ultimately unsustainable heights.
The Shanghai Composite Index is set to close in the mid-3,000 range, a marginal gain after being propped up by regulators and state-backed buyers. In a sweet and sour year, the index soared well above 5,000 before plunging below 3,000.
That was borne out by negative sentiment on materials. Angang Steel dropped from HK$6.60 to under $3 as collapsing demand and persistent oversupply exacted heavy losses from the steel industry. Cement stocks also slumped amid overcapacity, China Resources Cement and China National Building Material Company by more than half.
Energy stocks followed suit, with China Shenhua Energy and China Resources Power each dropping about 25 per cent in Hong Kong. By contrast, utilities – along with gold stocks – declined only slightly as investors sought out defensive options.
Among the financials, insurers were best in class. They largely withstood the market turmoil on the strength of their fundamentals, with Ping An Insurance the standout after reporting dramatic growth in agent sales and profit at mid-year.
Chinese banks took moderate losses, buffered by support from state buyers and retail investors anticipating state support. But securities brokerages, after a euphoric first half, were hit hard by suppressed trading volumes and a ban on new initial public offerings.
Haitong Securities’ share price fell more than 30 per cent in Hong Kong and on the mainland, while Citic Securities tumbled even farther after senior managers came under scrutiny from mainland authorities over breaches of trading rules.
Meanwhile, bourse operator Hong Kong Exchanges and Clearing gained low double digits to just over HK$200, a modest result after topping HK$300 mid-year.
Hong Kong’s property developers saw mild share price declines. While some analysts view the sector as oversold, others say it could slip further.
“The markets are worried that the interest rate hike in the US may affect the Hong Kong market – and the market is already at a very high level,” said Kenny Tang, chief executive officer at Junyang Securities. Tang said an initial rate rise was now priced in but further corrections remained possible.
Meanwhile, China property developers benefited from improved sales performance in tier one cities after the government lifted restrictions on second-flat purchases, Tang said.
And Macau’s gaming sector extended its period of decline to almost two years. SJM Holdings and Wynn Macau gave up over half their share value during the year – the latter partly due to the Dore junket theft scandal – with other operators close behind. Sands China was the most resilient, dropping just over 30 per cent.
As the third-quarter volatility fades into memory and markets wind down for the holiday season, some are seeing positives.
“The good news is that we see a modest pick-up in global growth and a renewed investor focus on fundamentals,” said Ewen Cameron Watt, global chief investment strategist at BlackRock.
Others say the chaotic year has called traditional models into question, confusing investment strategies.
“Looking into 2016, there is a lot of uncertainty,” wrote Mark Tinker, head of Framlington Equities Asia, in an AXA Investment Managers note.