Hong Kong stocks are not yet ‘richly valued’, expect the rally to continue on mainland fund inflows, analysts say
In spite of a record-breaking rally, Hong Kong stocks are valued at just 12.2 times forward earnings, or near their 10-year historical average
Hong Kong’s stock market has started the year with a vigorous, record-breaking rally.
But there is still room for valuations to head higher, especially given accelerating fund inflows from the mainland, according to China International Fund Management (CIFM), a joint venture between JPMorgan Asset Management and Shanghai Trust.
In spite of the bullish action, valuations of Hong Kong stocks are still near their 10-year historical average of 12.2 times forward earnings, suggesting the bull market in the past two years was only a catch up, said Elton Cheung Kai-lim, senior investment manager and Hong Kong equity research director at CIFM Asset Management (Hong Kong).
Moreover, Cheung noted daily southbound flows through the Shanghai and Shenzhen connect schemes accelerated to a net HK$3 billion (US$384 million) this year, up from around HK$1.5 billion per day in 2017.
Rising mainland fund flows into Hong Kong are one reason to be confident of further gains in the Hang Seng Index, Cheung said. Total southbound flows were about HK$770 billion last year, representing less than 5 per cent of the value of stocks on the Hong Kong market, he said.
