Hang Seng Index to underperform China-linked equity benchmarks next year: Morgan Stanley
- Hang Seng Index will probably end 2020 at 27,500, representing a 1.5 per cent gain from the current level, Morgan Stanley says
- Morgan Stanley cuts the rating on Chinese onshore stocks, citing slower pace of foreign buying and less appealing valuation
Hong Kong’s Hang Seng Index is likely to underperform any other key gauge tracking China’s onshore and offshore stocks in 2020, as the fallout from the months-long political unrest hits growth and corporate earnings, according to Morgan Stanley.
The benchmark of 50 stocks trading in the city may finish next year at 27,500, analysts led by Jonathan Garner at the US investment bank wrote in their 2020 strategy report for Asia’s emerging markets. That implies a 1.5 per cent gain from its close on Tuesday. In comparison, the year-end targets for the CSI 300 Index of mainland-traded stocks, the MSCI China Index of Chinese companies trading on both onshore and offshore markets and the Hang Seng China Enterprises Index will see gains of at least 6 per cent from current levels.
“Key sectors in Hang Seng with sizeable exposure to Hong Kong’s local economy such as financials and properties will also continue to suffer in 2020,” the report said.
In a bear-case scenario, the Hang Seng Index may trade below a five-year low of 9 times estimated earnings for the following 12 months, against the current valuation of 10.1 times, the report added.
The ongoing anti-government protests, which started in June in opposition to a controversial extradition bill that has now been withdrawn, has plunged the city’s economy into a technical recession in the third quarter, paralysing transport services, affecting businesses and scaring away tourists.
Morgan Stanley estimates a 1.3 per cent contraction in Hong Kong’s economy this year and only a 0.5 per cent growth in 2020.