• Thu
  • Dec 18, 2014
  • Updated: 11:18am
BusinessMoneyMarkets & Investing

Hang Seng Index knocked by poor Chinese data

City's share market starts 2014 badly, with some analysts expecting it to underperform this year

PUBLISHED : Friday, 03 January, 2014, 1:55am
UPDATED : Friday, 03 January, 2014, 4:55pm

Hong Kong shares got off to a sluggish start to the new year under the shadow of more disappointing manufacturing data from the mainland. Some market watchers have already lowered their sights for the market, expecting the benchmark index to lag global peers in 2014.

The Hang Seng Index gained 33.66 points, or 0.14 per cent, to finish at 23,340.05 yesterday, after a factory activity report for last month fell short of estimates. The final HSBC/Markit manufacturing purchasing managers index, released yesterday, slipped to 50.5 from 50.8 in November.

Hong Kong was the worst performer among major developed equity markets last year, as investors cashed out due to growing worries about the mainland's economic growth and concerns over the tapering of quantitative easing in the United States.

The city's benchmark index rose just 2.6 per cent last year, compared with gains of 56 per cent for Tokyo's Nikkei Index and 29 per cent for the S&P 500 Index in the US.

"The price to earnings ratio is still below the average 12.7 times, but the index lacks a catalyst for growth in the short term," Catherine Cheung Man-wah, head of investment strategy and research at Citibank Hong Kong, said yesterday.

Cheung expects the local benchmark to climb to 25,000 points by the end of this year, representing a gain of only 7.1 per cent from yesterday's close. She expects the market will benefit from cheap valuations, with potential support from economic restructuring on the mainland.

But Cheung estimates that global equity markets will see an average gain of 10 per cent, thanks to a shift of funds out of bond markets. Tokyo's Topix Index was expected to increase by 18 per cent, while the Shanghai Composite Index is forecast to rise by 33 per cent this year, she said.

Cheung said the main sectors to benefit from proposed reforms on the mainland would be consumer goods, consumer staples, health care, insurance, brokerages and technology.

Mainland technology giant Tencent closed at a record high of HK$504.50 yesterday, following its recent move to launch internet television linked to its popular messaging service WeChat.

Accounting firm PricewaterhouseCoopers (PwC) said that while it expected the secondary market would be flat this year, it was optimistic on the outlook for initial public offerings in Hong Kong.

Funds raised from new listings would exceed HK$250 billion this year, up from HK$169 billion last year.

Last year, Hong Kong moved back into the world's top three listing hubs by funds raised.

Of those companies to tap the primary market, PwC expects to see more retail and consumer goods businesses and mainland financial institutions.


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This article is now closed to comments

Will China's coming economic adjustment as painful as that of Hong Kong during the 1998-2003 period?
While CEPA and the Chinese tourists certainly help, it can be argued that Hong Kong's recent world-class competitiveness can be traced to the painful 1998-2003-internal-devaluation adjustment period.
This kind of adjustment is the destiny of Hong Kong under the linked exchange rate mechanism.
Perhaps the future (painful) economic adjustment in China is also a blessing in disguise (the stock market punters must disagree with me).
I hope my analysis isn't too far from the truth.
The reform process in China may be relatively slow and painful. Credit in the foreseeable future will be relatively tight. The stock market will be subdued in the near future.
While the overall stock market in China, in a sense dominated by the policy banks, will be lukewarm, some individual stocks may rise like a balloon.
Hong Kong's stock market may be performing similarly.
Now we really need the help of the 'experts'.
Those Chinese local government officials have always been rapacious borrowers. Afterall, their future promotion prospects depend on their locality's GDP growth rates, and the loans will be repaid by officials in the next term (translation: the loans won't be repaid).
But why did their loans increase particularly fast in recent years? Why did China's problem of overcapacity especially serious these few years? Why did China's shadow banking system proliferate so quickly recently?
I think these three problems are all interrelated.
Something significant must have happened in recent years.
The 2008 crash must quickly come to your mind. And so must the subsequent RMB$4 trillion stimulative program in China.
Hence the above three problems.
It once again shows that the road to hell is paved with sincerity.
In this case the sincerity is the government's well-intentioned but misguided policy.
The problems have to be solved, perhaps slowly, through loan-rollovers, 'de-overcapacity', interest rate liberailization, reforming the banking system, standardizing the shadow banking system, and so on.


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