Funds exit spurs finance groups to lower HSI targets

CCB International Securities and Citibank cut forecasts by 2,400 and 500 points, respectively

PUBLISHED : Friday, 28 June, 2013, 12:00am
UPDATED : Friday, 28 June, 2013, 4:30am

Two leading financial institutions have cut their forecasts for the Hang Seng Index in response to an outflow of liquidity as the US dollar strengthens and more stock deratings because of slower mainland economic growth.

CCB International Securities cut its forecast by 2,400 points to 22,100 for the index by year-end. Instead of the 12 per cent full-year gain that it expected at the beginning of the year, the investment bank is forecasting a 3 per cent loss for the indicator.

Meanwhile, Citibank lowered its 12-month forecast for the market to 24,000 points from 24,500, as interbank funding costs on the mainland rose to a record high.

Peter So, the managing director and head of research at CCB International, said: "Under our bear case scenario, there is a chance the Hang Seng will dip 10 per cent to 19,500 [points] in the third quarter on further weakening economic indicators and earnings disappointments in the interim results season, which could prompt further earnings downgrades."

However, the new targets still represent upside from the present level. The index rose 0.5 per cent to finish at 20,440.08 points yesterday. It has fallen 10 per cent since the beginning of the year.

So recommends accumulating carmakers such as Great Wall Motor and Geely Automobile on speculation those stocks will rebound in autumn, usually a peak season for them. He is also bullish on technology firms due to rapid broadband penetration on the mainland and the multitude of mobile internet applications being launched.

Global investors had high hopes for the Hang Seng Index at the start of the year, on speculation earnings of mainland firms would recover, as they were expecting an average of 8.2 per cent economic growth this year.

As the year started, most were expecting firms tracked by MSCI China, which covers major mainland enterprises, to achieve 12 per cent earnings growth.

"We now face much derating pressure, as many investors feel reluctant to pay for a high [price-earnings ratio]," said Catherine Cheung, the head of investment strategy and research at Citibank's Global Consumer Group.

"The market is now near a bottom, and the valuation is at its lowest since 2009, but we lack a short-term catalyst."