Fund managers pull out of Hong Kong companies amid rising risk
The city's firms have been underperforming for months amid a rise in political risks threatening key sectors such as retail, tourism and property
Fund managers are shifting out of stocks of local companies after months of underperformance and rising political risks in the wake of pro-democracy protests that could hit the earnings of the key retail, tourism and property sectors.
Analysts who have been advising clients to prepare for slowing profit growth from Hong Kong stocks say rising political risks in the city are forcing a faster repositioning of portfolios.
"Political developments in Hong Kong have so far added uncertainty to earnings prospects in the city, although at this point in time it is difficult to assess how much," said HSBC analysts led by Herald van der Linde in a report yesterday.
The MSCI Hong Kong index, which tracks major local companies, has been underperforming the MSCI China index for five consecutive months, reflecting investors' concerns over the city's economy amid soaring property prices and tepid retail sales growth.
HSBC said it expected earnings of local companies to fall 8.1 per cent next year, following a 26.2 per cent growth this year. That would imply a significant re-rating of local stocks, acting as a further cap on growth prospects.
"The Occupy Central movement has resulted in the blockage of key business areas and shopping districts, which is weighing on retailers and tourism-related stocks," said Cheukwan Fan, Asia-Pacific chief investment of Credit Suisse's private banking sector.