Mainland economic growth data fuels surge in Hong Kong stocks
Better-than-expected economic data prompts investors to jump into the market, pushing the Hang Seng Index to its highest since June 2011
The Hang Seng Index yesterday rose to its highest level since June 2011 after the mainland's economic growth beat expectations, raising prospects for the world's second-biggest economy.
Fund managers and strategists said the Hong Kong market would see some correction before the Lunar New Year but would not fall much as liquidity continued to flow into the city and the mainland recovery story was not yet fully priced in.
The blue-chip index rose 1.12 per cent to finish at 23,601.78 points.
The mainland's gross domestic product grew 7.9 per cent in the past quarter, compared with a market estimate of 7.8 per cent, adding to confidence the nation's economy is turning the corner.
"Mainland corporate earnings growth is in a turnaround point as the economy recovers," said Hou Wey Fook, the chief investment officer at Bank of Singapore.
The H-share index rose 2.09 per cent as the Shanghai Composite Index gained 1.41 per cent. Mainland firms account for more than half of the market capitalisation in the Hang Seng Index.
Mainland consumer sector and growth-sensitive banks were the biggest boosts to the benchmark. Industrial and Commercial Bank of China rose 1.71 per cent to HK$5.94, while China Construction Bank gained 1.53 per cent to HK$6.63, and Belle International climbed 3.3 per cent to HK$17.54.
"The positive surprise in [mainland] China's economic performance was associated with strong retail sales and recovery in exports," JP Morgan economist Zhu Haibin said.
The bank revised the mainland's economic growth forecast for this year to 8.2 per cent yesterday after the official data.
By breakdown, consumption, investment and net exports contributed 51.8 per cent, 50.4 per cent and a negative 2.2 per cent, respectively, to the mainland's GDP growth last year.
Asset managers including Barings, JP Morgan and PineBridge recently have been expressing willingness to allocate more funds in the coming year to the consumer discretionary sector as the new leadership's mission is to improve quality of life.
"Some of the best [investment] opportunities are seen in the consumer discretionary sector," said PineBridge fund manager Desmond Tjiang, who upgraded the sector to overweight from neutral.
On the MSCI China Index, the consumer discretionary sector is trading at a historical average, while the consumer staple sector is trading at 50 per cent premium to its average.
Besides a rush to tap the mainland recovery, additional liquidity would be the main reason for Hong Kong equity prices to receive a further boost. "There is just too much cash around," Hou said.
UOB Kay Hian strategist Steven Leung said large-cap firms would benefit the most from the easing measures by global central banks as their shares were normally more liquid.
The yen yesterday fell to a 30-month low on speculation Japan's central bank may announce an open-ended asset buying scheme.
Barings said mutual funds over the past few months had been shifting their allocation back to equity, especially high dividend-yielding shares, to catch the bull run. "This is a year of equities, rather than bonds," Barings' Khiem Do said.