CHINA MARKETS
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China stock market

China and Hong Kong stock market sentiment cautiously optimistic as New Year comes in

PUBLISHED : Thursday, 31 December, 2015, 3:48pm
UPDATED : Thursday, 31 December, 2015, 4:12pm

Analysts are cautiously optimistic about the prospects in 2016 of the A-share market in mainland China and the Hong Kong stock market after the wild gyrations of 2015.

“The macro outlook of China is very challenging,” said Vincent Chan, head of China research at Credit Suisse. “The huge problem of excess capacity in the manufacturing and mining sector has limited room for industrial investment.”

The Swiss investment bank predicts China’s GDP growth will dip to 6.8 per cent in 2015 and further slow to 6.5 per cent in 2016.

For Hong Kong, analysts from Credit Suisse said in a recent research note that the city’s stock markets currently trade at a low price to book ratio, which provides a case for a market rebound.

The Swiss firm set the 12-month rolling target for the Hang Seng Index at 25,000, implying a 14-15 per cent upside from the year end close at 21,914.

Meantime, it predicts the HSCEI to reach 12,000 in the 12-month period, a rise of 24 per cent from its year-end finish at 9,661.03 on Thursday, the last trading day in Hong Kong.

Li Chen, another analyst from Credit Suisse, forecast the A-share market to remain in a wide range in 2016, expecting the large-cap CSI-300 index to fluctuate between 3,400 and 4,300.

The Shanghai Composite Index finished on Thursday at 3,539.18, off by 33.69 points or 0.94 per cent lower from the previous session. but up 9.41 per cent on the year while the Shenzhen Composite Index settled at 2,308.91, down 42.45 points or 1.81 per cent for the day. On the year, it had surged 63.15 per cent for 2015.

Chinese markets had a turbulent 2015, scaling a 7-year peak at the start of June, before a summer rout led to a plunge, forcing the government to intervene and wiping out some US$4 trillion in the value of markets in Shanghai and Shenzhen.

Li said A-share market valuations will probably increase slightly in 2016, due to the presence of abundant liquidity, with institutional investors possibly increasing their positions when bond yields decline and retail investors return to the markets to chase an advance or subscribe to new shares.

However, the outlook for corporate earnings remains gloomy, as China’s economy looks set to deteriorate further.

Goldman Sachs is more bearish about China as its analysts forecast the economy to grow by 6.4 per cent in 2016, the slowest pace since 1989, as the country is “undertaking reforms to correct deep-rooted macro imbalances and to nurture new growth drivers”.

Nevertheless, they also said China’s domestic liquidity is likely to stay easy in 2016 to support growth and facilitate reforms.

Goldman analysts expect the CSI 300 to reach 4000 by the end of 2016. They also forecast a 7 per cent price return for the MSCI China Index in 2016.

For Hong Kong indexes, the Hang Seng Index will probably rise to 24,000 in a 12-month period going forward, they said. For the mainland company-tracking HSCEI, they predicted a 12-month level of 10,500.

Overhanging the Hong Kong market will be risk factors such as the likelihood of further rate increases by the US Federal Reserve after its initial hike on December 16. Given the peg of the Hong Kong dollar to the US greenback, more increases by Washington would reverberate in the Hong Kong property, economy and equity markets.