UBS forecasts 15pc expansion in Hong Kong market
Bank says earnings growth will boost Hang Seng Index, alongside other Asia-Pacific markets
UBS sees the Hang Seng Index gaining at least 15 per cent next year on the back of improving earnings growth in sectors like consumption, internet commerce and non-bank financial firms.
The asset manager expects earnings of companies on the local benchmark to expand around 7 per cent next year, with the index to rise to a level between 26,800 and 28,000 points. The Hang Seng Index closed at 23,218.12 points yesterday.
Chinese and other East Asian stock markets will surge next year after a lacklustre performance in 2013, driven by attractive valuations and inflows into the region, a Reuters poll has shown.
"In Hong Kong, conglomerates, banks, gaming operators and capital-goods companies offer growth and income potential as the economic cycle improves," said Yonghao Pu, Asia-Pacific regional chief investment officer at UBS. "We think China's final reform blueprint will be a positive re-rating catalyst for the market".
Those stocks were expected to generate dividend yield above 3 per cent, Pu added.
He said investors should be cautious about medium- and small-sized Chinese banks, saying that their above 5 per cent dividend yields are "high for a reason, reflecting worries over the shadow banking problem on the mainland."
"We recommend investing in only the largest of these banks," he said.
Meanwhile, UBS expects Hong Kong's home prices to correct up to 10 per cent next year as the supply of new flats is set to soar.
"Average home prices are now equivalent to 14.7 years of the average household income, slightly above the previous peak in 1997," said UBS analyst Patrick Ho.
"In Hong Kong, the number of units available for sale in the next three to four years will likely reach 72,000, or 6.4 per cent of the existing stock," Ho said.
By contrast, Haitong International Securities Group expects mainland home prices to rise by about 10 per cent next year, thanks to hot demand.