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Hong Kong stocks look for earnings boost, mainland China tonic to overcome fatigue after world-beating run
- Investors see an imminent inflection point in corporate earnings to justify bull run as China’s economic expansion gains traction
- Chinese investors buy Hong Kong shares as a hedge to yuan-based assets on valuation appeal and hopes for better US-China ties
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Hong Kong markets suffered their biggest slide in eight weeks on Friday, the first sign of fatigue during the best start to a year since 1985. Investors, though, will not run out of reasons to remain upbeat in the near term.
Unprecedented inflows from Chinese funds, progress in vaccination plans, and the prospect of better US-China ties are among key factors driving the new-year boom. The Hang Seng Index’s 8.1 per cent jump this month to the highest in 20 months ranked it among the top three major-market performers. In the process, Hong Kong eclipsed Japan as the third largest equity market by capitalisation.
An imminent rebound in corporate earnings beckons, according to HSBC Jintrust Fund Management, after China’s economy returned to a pre-pandemic growth rate of more than 6 per cent last quarter.
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“We will probably see a turning point in earnings for Hong Kong-listed companies in their fourth-quarter reports,” said Cheng Yu, its Shanghai-based fund manager who invests in Hong Kong shares through the Stock Connect programme. “That’s the biggest underpinning of fundamentals.”
The 52 members of the Hang Seng Index will probably report a 26 per cent increase in earnings this year on average, versus an almost 30 per cent decline in 2020, according to consensus estimates of analysts polled by Bloomberg. The members have a combined HK$11.53 trillion (US$1.49 trillion) of market capitalisation.
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