Consumer, telecoms shares tipped to shine in volatile market

Hong Kong's equity market will stay volatile in the next few months, according to rating agency Standard & Poor's. Stocks of telecommunications firms and those selling consumer staples are likely to outperform.

Lorraine Tan, director of research for Asia at Standard & Poor's, expects more volatility in the coming quarter, owing to investor concerns over slowing global economic growth, and says this may hurt cyclical stocks such as those in the banking, energy and gaming sectors, which are valued at reasonable levels.

'Picking out sectors might not be a good approach when it comes to selecting stocks,' said Tan. 'Take a look at the banking sector. We have seen outperformance from Bank of China (Hong Kong) but not all the banks have reported good results this year.'

Tan favours the energy and financial stocks as they offer better value. To have a balanced portfolio, investors should also introduce defensive stocks from the consumer staple or the telecommunications sector, she says.

S&P's forecast of Hong Kong's gross domestic product for the second quarter is 6 per cent, down from the first quarter's 8.2 per cent.

Tan also expects the Hang Seng Index to hover between 21,000 and 22,000 points towards the end of this year.

Global risk appetite will continue to be weakened by the slowdown in the recovery in the US economy.

Economic growth on the mainland would remain strong but the bubble in its property market was still a concern, said the rating agency.

S&P global chief economist David Wyss says there is a one-in-three chance the US will go back into recession. 'The housing market is less of a risk because it is not a big part of the economy any more,' said Wyss. 'I would not be surprised if the US dips back into recession in the next 12 months.'

The US trade deficit with China will increasingly become a political problem if the recovery of the world's largest economy is not back on track.

Wyss anticipates the mainland's GDP growth will rise to 10.3 per cent this year, with inflation becoming a pressure, but does not expect the People's Bank of China to raise interest rates.

'I think China will follow the other central banks to raise rates, which I don't expect to happen until next year, ' he said.

'For its own benefit, I think China should allow its currency to appreciate, but I expect it will be more to do with a political cause rather than a fiscal one.'

Rough patch

Standard & Poor's sees inflation becoming an issue on the mainland

However, the rating agency expects mainland GDP growth this year will be: 10.3%