Goldman upgrades Hong Kong stocks outlook
Investment bank takes cue from positive signals from key Communist Party meeting, raising its target for Hang Seng Index by 1,000 points
Goldman Sachs has raised its forecast for the Hang Seng Index next year by 1,000 points following positive signs from a key Communist Party meeting in Beijing this month, betting that more policy announcement will emerge in coming months to boost reform-sensitive sectors.
Mainland companies account for 54 per cent of the market capitalisation of firms listed in the blue-chip index, and Goldman strategist Kinger Lau said yesterday he expected the benchmark would rise to 26,500 points by the end of next year.
The index closed yesterday at 23,684.45 points, up 4.5 per cent since the start of the year.
The investment bank raised its index target from 25,500 and upgraded the mainland to "overweight" following the third plenary meeting of the party's Central Committee, which set the tone for economic policy under the new leadership.
"The key message we get from the third plenary meeting is that the leaders are fairly pro-market," Goldman economist Li Cui said.
"They have emphasised various deregulation of prices, increasing competition between private firms and [state-owned enterprises], simplifying government approval processes.
"That's all positive for economic efficiency."
The bank recommends buying reform-sensitive firms and cheap banks as the best way to get upside exposure to the mainland market.
Nine stocks on the Hong Kong market were seen likely to be among the top beneficiaries from mainland reform: China Galaxy Securities, Want Want China, AviChina Industry & Technology, China Resources Gas, Guangdong Investment, Huaneng Renewables, Shanghai Fosum Pharmaceutical, China Medical System and Tencent.
Meanwhile, mainland banks, trading at about 0.9 times price-book value, were likely to rebound from a valuation trough as the mainland launched more bank-specific reform policies, Lau said.
Mainland lenders are trading at a 10 per cent price-book discount to global peers, an extremely cheap level when compared with the 150 per cent premium seen in 2009.
Goldman expects the mainland's economy will grow by 7.8 per cent next year, more than the market consensus of 7.5 per cent.
However, National Australia Bank economist Alan Oster said yesterday he expected growth of just 7.25 per cent, citing tough measures to rein in the shadow banking sector and housing prices.
Li said that what differentiated upcoming reforms was the setting up of a 28-member team to promote them.
"In our view this central-led approach is a little different from before and gives more chance for the government to push through tough reforms," she said.