No one saw this bull coming, so does Hang Seng Index have the legs to keep running in 2018?

Hang Seng Index has the strongest annual growth since 2009 while most analysts expect it can break historical record in the first half - but analysts have mixed view on the way ahead

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A statue of the bull in front of the Hong Kong stock exchange at the Exchange Square in Central, Hong Kong. Photo: SCMP/David Wong

Published: 12:30pm, 30 Dec 2017Updated: 10:08pm, 30 Dec 2017

Hong Kong’s stock market made its strongest advance in a decade, with the benchmark Hang Seng Index rising 36per cent to close 2017 at 29,919.15 points.

No one saw the bull coming. When 2017 started, the most optimistic forecasts from Goldman Sachs to Morgan Stanley to HSBC predicted that the main index of Asia’s third-largest capital market would close the year somewhere between 24,000 and 26,000 points.

Instead, the 51-member index broke through the upper forecast by mid-July, touching 30,003.49 on November 22, the highest level in 10 years. The China Enterprises Index, which tracks Chinese companies listed in the city, has risen 24.6 per cent this year.

Geely Automobile Holdings, the Hangzhou-based owner of the Volvo brand and a Hang Seng Index member since March, returned investors almost 266 per cent this year. Tencent Holdings, operator of China’s dominant social network, rose 114 per cent and briefly became the first Asian company to surpass US$500 billion in market capitalisation.

“Many international banks and brokers missed the boat this year,” said Christopher Cheung Wah-fung, chairman of Christfund Securities and the legislator representing Hong Kong’s financial services industry. “Fund managers who missed out on Geely and Tencent are the losers of 2017.”

What changed in 2017 was the combination of several factors: a massive outpouring of Chinese capital from Shenzhen into Hong Kong’s stock market via the city’s “Connect” programme, adding to another pipeline created three years earlier with Shanghai. The amount of so-called southbound capital more than doubled to 4.46 billion yuan (US$682 million) in the first 10 months of this year, contributing to a record 6.6 per cent of the turnover on the city’s bourse.

China’s economic growth also stabilised at 6.9 per cent in the last three quarters, a slower rate than the previous 25 years, but faster than the most dire forecasts. That bolstered confidence, Cheung said.

Does the 2017 bull have enough strength to keep galloping next year? Yes, but not by far, according to the consensus of seven brokers, analysts and strategists canvassed by the South China Morning Post. The forecasts range from the most optimistic (a gain of 15 per cent) to the most pessimistic (decline of 5 per cent) to a median of a 5 per cent gain.