Blackrock still backs Hong Kong equities market over A-shares

Despite exit by some foreign investors, company’s head of China equities favours HK shares because of their valuations and China’s economic growth outlook

PUBLISHED : Tuesday, 11 April, 2017, 7:10pm
UPDATED : Tuesday, 11 April, 2017, 10:42pm

Hong Kong’s equities are still more attractive than A-shares this year, because of their valuations and the outlook for China’s economic growth and reform policies, according to Helen Zhu, head of China equities at BlackRock, despite something of an exodus by foreign investors.

They have fled Hong Kong’s stock market since the start of last year because of pressure from yuan depreciation, China’s slowing economy as well as concerns that potential US protectionist policies will hurt exporting nations.

The price-to-earnings ratio in the Hang Seng China Enterprises Index fell to 8.6 times earnings, according to the latest data, a historical low making it Asia’s worst performer.

But Zhu expects a reversal of fortunes, that is likely to see foreign investors switch money back into the city and in turn see Hong Kong stocks catch up with their A-share counterparts, especially given the higher dividend yield of the city’s equities.

A turnaround in China’s producer price index since September along with improving coal and steel prices appear to be signalling improving economic fundamentals there.

This may in turn provide room for the government to push ahead with reforms in corporate deleveraging, improving overcapacity and deregulating industries.

“Reforms are likely to become more apparent, leading to better quality economic growth and boosting confidence among foreign investors,” Zhu said, adding that the power sector is expected to become more market driven this year while higher environmental standards will improve returns in the cement and chemical sectors.

Furthermore, positive comments from Presidents Xi Jinping and Donald Trump at last week’s summit in the US have eased market concerns of the risk of a full-blown trade war, benefiting Asian stocks including Hong Kong, Zhu said.

China appears to have offered concessions to include better market access for US financial sector investments and beef. At the same time, the US has so far avoided Trump’s campaign promise to label China a currency manipulator, or to impose a 45 per cent tariff on Chinese goods.