Red chips may present good buying opportunities in the second quarter, although their share price declines will continue amid the regional crisis, Schroder Investment Management (Hong Kong) says.
China fund manager Tina So Shuk-man told a briefing yesterday that red chips would underperform in the Hong Kong market during the early part of the year as analysts revised their profit estimates downwards, and earnings and net asset values declined in the short term.
Any rally in the Hong Kong market, which could be expected in the second half, would be led by blue chips, followed by red chips, she said.
H shares and B shares would take a longer time to recuperate. H shares had less flexible management while the B-share sector suffered from a lack of liquidity.
Ms So said she expected the premium of red chips relative to the Hang Seng Index - a figure which has dropped from more than 350 per cent to 100 per cent - to fall by a further 50 to 80 per cent.
The premium was likely to stay, she added, because red chips were still viewed as the best vehicle to cash in on growth in the mainland.
They are expected to register core earnings growth of about 28 per cent this year even without further asset injections while the slower economy in Hong Kong will depress the outlook for stocks that mainly derive their income from Hong Kong.
