Slower Chinese growth to limit Hong Kong stock gains: poll

Investors also believe bursting of city's property market bubble is a major risk for local shares

PUBLISHED : Tuesday, 16 July, 2013, 12:00am
UPDATED : Tuesday, 16 July, 2013, 5:39am

The upside for Hong Kong stocks will be limited in the second half of the year due to slower economic growth on the mainland, which could put a dampener on earnings growth, according to JP Morgan Asset Management.

"Expectations for earnings are not turning around and … the urgency needed for further stimulus right now is probably not possible unless you have quite a shock in terms of China's economic growth," the firm's chief market strategist for Asia, Tai Hui, said yesterday.

Expectations for earnings are not turning around and … the urgency needed for further stimulus right now is probably not possible unless you have quite a shock in terms of China's economic growth

The local benchmark stock gauge, the Hang Seng Index, is trading below its five-year average, but rose 0.12 per cent yesterday to finish at 21,303.31, despite official data showing that economic growth in the mainland slowed to 7.5 per cent year on year last quarter.

A survey conducted by JP Morgan Asset Management found that local investors believed that the bursting of stock market and property bubbles in Hong Kong were the two biggest risks for the city's stock market in the second half of the year, followed by the European debt crisis.

Yet, despite all the risks, the market was too low to fall much further, Tai said. He recommends buying mainland developer stocks, speculating that Beijing will not further tighten curbs on the housing market because doing so could cause the economy to collapse.

More than half of Hong Kong-based investors are expecting the local equity market to trade higher than its current level by the end of the year, according to the survey of more than 500 people.

Almost one in every two investors expect the Hang Seng Index to be at a level of between 22,001 points and 24,000 by the end of the year, representing growth of 3 per cent to 13 per cent from the gauge's current level.

Some 8 per cent believe the barometer will rise to between 24,000 points and 26,000 by the end of the year.

A stronger US economy and rising US Treasury yields are seen as the major reasons for the downturn in the local market in recent months, as investors shift their investment capital into US government bonds.

Tai argued that this could be good news for Asian equities.

"In the early stages of the US recovery, we have actually seen the equity markets in Asia perform positively, even when US interest rates are rising," Tai said.

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