Rebound unlikely for Hong Kong stocks in second quarter
Worries over slowdown across the border expected to weigh on the HSI while casino stocks and mainland internet firms face selling pressure
Fund managers predict a flat performance for the Hong Kong equity index in the second quarter amid worries over the mainland's slowing economy, while some see selling pressure in the Macau casino and the mainland's internet sectors due to overvaluations, a survey compiled by the South China Morning Post shows.
The benchmark Hang Seng Index lost 5 per cent in the first quarter, the most since the quarter to June last year, as investors withdrew capital in the wake of disappointing economic data from the mainland.
The mainland expanded 7.4 per cent between January and March, its slowest pace in 18 months, raising fears that the world's second-largest economy would miss its growth target for this year.
Looking ahead, all six fund managers polled believe disappointing economic activity on the mainland is the biggest threat to the equity market in Hong Kong in the second quarter, followed by capital outflows, a surge in interbank borrowing costs and defaults of corporate bonds or trust products on the mainland, according to the survey, which was conducted late last month.
"The [mainland] economy should recover next quarter from the first quarter," said Thomas Poullaouec, head of the strategy and research group at State Street Global Advisors.
"However, we do not see the [mainland] economy overshooting on the upside as the priority of the government remains the transitioning of the economy as announced during the last plenum. Hence, the risk to our recovery scenario is still on the downside."
Raymond Chan, chief investment officer for Asia-Pacific at Allianz Global Investors, said the worst was yet to come in terms of capital outflows from Hong Kong, citing pressure from tapering in the United States and macroeconomic data on the mainland.
The Hang Seng Index closed at 22,760.24 points on Thursday before the Easter holiday began. The H-share index is showing a price-earnings ratio of about 11 times, compared with 27 times in 2007.
Fund managers believe the technology sector is most likely to beat the benchmark performance in the second quarter, while Hong Kong developers and the mainland's resources firms are most likely to be the worst performers.
Meanwhile, they are divided on the valuation of Macau's gaming sector and the mainland's internet stocks. State Street and JP Morgan Asset Management say neither sector is overheated.
Paul Chan, the chief investment officer for Asia ex-Japan at Invesco, said internet stocks were under pressure from overbuying but the Macau story remained solid "because of valuations, real earnings and cash flows generated by casinos".
The six asset managers that too part in the quarterly survey were Allianz, Amundi, Invesco, JP Morgan Asset Management, State Street and Manulife.