Hong Kong stocks finish their best lunar year since 2009 with 33 per cent gain
Analysts are generally optimistic about Hong Kong stocks in the Year of the Dog, but are cautious about a potentially faster pace of increases in US interest rates
Hong Kong stocks closed the Year of the Rooster on an upbeat note, logging an annual gain of 33 per cent, their best lunar year performance since 2009. The market was also a top performer among major global markets.
The Hang Seng Index ended the half-day session on Thursday at 31,115.43, up 2 per cent from the previous day. The Hang Seng China Enterprises Index, or the H-share index, finished up 2.2 per cent at 12,535.51.
In the past lunar year, which started on January 28, the Hang Seng Index has jumped 7,755 points, or 33 per cent, its best performance since the Year of the Ox in 2009. Globally, it has outperformed major indices such as the Dow Jones Industrial Average and the Nasdaq Composite in the United States, Japan’s Nikkei 225, India’s BSE Sensex 30, Germany’s DAX index and France’s CAC 40 index.
The 33 per cent jump also marks the best “Rooster Year” performance since 1993, when the index soared by 95 per cent.
Thursday’s half-day turnover reached HK$76.9 billion (US$9.83 billion) on the main board. Although it is weaker than usual before a Lunar New Year holiday, the number has increased by more than twofold from the half-day turnover of HK$29.6 billion on January 27, 2017, the last trading session of the Year of the Monkey.
“Hong Kong stocks have performed well in the first month of 2018, but the market could turn more volatile in the Year of the Dog, as the direction of capital flows could change because of the conditions in the US bond and stock markets, ” said Conita Hung, investment strategy director at Hong Kong investments advisory company Gransing Securities.
A faster than expected increase in US interest rates will be a major concern in the coming year, she added. But she expected that continued capital inflows from mainland China and improved corporate earnings will boost the Hang Seng Index to test its historical peak level of 33,484 again, which it touched on January 26.
She also said the index might touch a low of 28,000 in the new year.
Dickie Wong, research director for Hong Kong-based Kingston Securities, said the valuation of Hong Kong stocks was still relatively low at a current price-to-earnings ratio of about 16. He said the Hang Seng Index could fluctuate between 35,000 and 28,600 in the new year.
Analysts at China Merchants Bank International Securities have also forecast that the Hang Seng Index could reach a new peak in the new year, helped by low valuations, better company earnings and buying interest from mainland investors.
The Hong Kong stock market will be closed from Thursday afternoon until Monday for the holiday.
On the mainland, the Shanghai and Shenzhen markets have been shut since Thursday and will resume trading on Thursday next week.
The Shanghai Composite Index closed Wednesday higher by 0.5 per cent, at 3,199.16. The Shenzhen Component Index added 0.7 per cent to 10,431.91.
During the Year of the Rooster, the Shanghai Composite Index only gained 1.3 per cent, much worse than the 14.3 per cent jump it recorded during the previous lunar year.
“We expect the A-share market to perform better in the new year, as overseas capital inflows may increase due to a correction in investors’ views about the Chinese economy,” Wang Hanfeng, chief strategist for China International Capital Corporation, said in a research report.
“Overseas investors have previously underweighted Chinese stocks.”
The fundamentals of the Chinese economy have improved, and the valuation of mainland Chinese stocks was relatively cheap, he added.
Wang forecast the A-share market to deliver a double-digit return in 2018. Sectors with steady growth and lower valuations, such as materials, mid-sized banks, insurance and securities firms, will outperform in the new year, he said.