What next for the Hang Seng Index, now that it has recouped all protest losses?
- The benchmark Hang Seng Index has recouped all its losses since the social unrest started, helped by the US-China phase one trade deal
- Investors caution against excessive optimism as the protests could still flare up
A recent run-up in Hong Kong’s US$5 trillion stock market shows investors seem to have put behind seven months of anti-government protests, with the benchmark index recouping all losses triggered by the unrest. But analysts have cautioned against undue optimism, as the social unrest continues.
The quick improvement in market sentiment has triggered questions over how much longer the rally will continue. Analysts say the lingering possibility of a flare-up in social unrest will set a limit to the rebound, while some suggest the low valuation of China-based companies represents a buying opportunity.
“The political risk in Hong Kong hasn’t entirely dissipated and that will put a cap on stocks’ valuations in the long turn,” said Ken Chen, strategist at KGI Securities. “A significant further gain in Hong Kong stocks seems unlikely … Hong Kong’s poor economy over the past six months will soon be reflected in companies’ upcoming annual results and that’s brewing up risks for some companies particularly.”
The current recovery may stall when the Hang Seng is in the range between 29,000 and 30,000 points, Chen said.