Contrarian buy signal: Hong Kong’s retail investors remain wary, and sidelined, as market inches higher, JP Morgan survey

Majority of respondents expect Hang Seng Index to trade below 22,000 in the next six months

PUBLISHED : Monday, 18 April, 2016, 7:01pm
UPDATED : Monday, 18 April, 2016, 7:01pm

Hong Kong retail investors have grown more optimistic about the outlook for Hong Kong stocks, but they remain wary of bolstering investment positions amid concerns of a further weakening of the Chinese economy and a possible US rate increase, JP Morgan said on Monday.

The JP Morgan Investor Confidence Index, a private gauge of Hong Kong investor sentiment for the coming six months, ticked up to 110 in March from 107 in December 2015, according to latest survey results released by JP Morgan Asset Management (JPMAM).

Conducted in March, the survey rates confidence levels from a survey of 515 retail investors in Hong Kong.

“Investor sentiment has improved as the Hang Seng Index returned to above 20,000 and oil prices recovered from a decade low,” said Marcella Pun, head of retail distribution for JPMAM, at a media briefing in Hong Kong.

Among all sub-indexes, confidence in the value of investment portfolio recorded the biggest increase, up 7 points to 116 in the first quarter. Confidence in the Hang Seng Index also rose 6 points to 117.

However, Amount of Investment Sub-Index, which indicates the desire to bolster positions in the market, registered a slight drop, easing 1 point to 109.

Pun said investors are increasingly cautious about the outlook for Hong Kong stocks, as 72 per cent of respondents expect the Hang Seng Index to trade below 22,000 in the next six months, up from 42 per cent in the previous survey conducted in the fourth quarter. Meanwhile, fewer people intend to adopt an aggressive investment strategy, with 15 per cent willing to do so versus 20 per cent in the fourth quarter.

The slowdown of China’s economic growth and uncertainty about the next Fed rate increase are among the biggest risks to the Hong Kong market, survey results revealed. Other major risks included a global growth slowdown, volatility in mainland stock market, and the devaluation of the yuan.

59 per cent of surveyed investors see the slowdown of China’s economic growth as the biggest risk in the second quarter of 2016, while 75 per cent anticipate the rate increase to come in the second half of 2016.

“The truth is the US economy continues to expand at a steady space,” said Ben Luk, global market strategist for JPMAM.

“We believe the Fed should still raise rates one to two times in the remaining months in 2016 as further attempts from the Fed to keep monetary policies as low as possible will only create an asset bubble in the long run and could eventually spark a surge in inflation,” he added.

He acknowledged the Chinese economy will slow down in 2016. However, as economic indicators are improving, Luk is optimistic that China can meet its expansion target range and grow 6.5 per cent in 2016, through the use of fiscal and monetary policies.

Luk also expected oil prices to show a mild rebound in 2016, reaching US$50 a barrel at the end of this year.

“Continued accommodative monetary easing measures, a potential end to the US dollar rally, stabilisation of commodity prices and an even more gradual rate path are all risk-asset friendly factors, especially for emerging markets and Asia, as long as the Fed is patient and communicates effectively while China can engineer a soft landing, ” Luk said.