For once it may not be wise to sell in May
Normally shares underperform during the summer, but this year could be different
"Sell in May and go away." Will this be the year that the old investment adage, arising from a long-run statistical underperformance of stocks from May to October versus the period from November to April, proves wrong?
Well, perhaps, say a number of fund managers who spoke to the South China Morning Post on their immediate outlook for equity markets.
Derek Kwong, the chief investment officer at Basic Asset Management, said: "I am a bit positive on the outlook after two to three months of correction. It seems the index will have some support at a level of 22,000."
That assessment comes after a sell-off that took the Hang Seng Index to a five-month low last month.
The index began the year with a gain of 4.7 per cent in January, with most fund managers then expecting a total gain for the year of between 10 and 15 per cent, which would take the index to 24,000 points by December.
But sentiment turned bearish in February as disappointing economic data from the mainland and concerns over a slew of risks such as shadow banking dried up foreign capital flows into the market and took the index from a high of 23,822.06 on January 30 to a trough of 21,512.52 on April 18.
William Fong, a fund manager with Barings, who remains bullish on mainland property developers and carmakers because of strong sales growth prospects, said: "I am against the 'sell in May' advice. The Hong Kong market can't be much cheaper, due to the valuation gap with the United States and Asean markets at present."
The Hang Seng ended on Friday at 23,082.68 points, a year-to-date gain of 2.44 per cent and on a 12-month forward earnings multiple of 11 times, against a 10-year average of 14 times.
Fund managers expect those historically cheap valuations may limit any pull-back. But that does not necessarily mean now may be a good time to buy.
Caroline Maurer, a fund manager with Henderson, said: "It's so hard to say. People still feel reluctant to buy cyclical stocks and some energy and commodity plays have lost 20 to 50 per cent so far this year."
However, Maurer said, she would continue to buy defensive names among utility and telecommunications firms.
Some Southeast Asian markets have seen double-digit growth this year, triggering speculation investors might take profits from those expensive markets and move to China.
Research company EPFR reported that fund flows in the Hong Kong and mainland markets turned from a US$740 million net outflow to a US$110 million net inflow last week. But fund managers were unsure whether such inflows would continue.
That reservation may stem from the fact that many took heavy losses from betting on cyclical issues, such as cement and oil firms, when the new year started. The best-performing sector in the Hong Kong Composite Index so far this year is utilities, with a 17 per cent gain, while the materials sector has been the worst-performing, with a 12 per cent loss.