China stock market

Hong Kong stocks rally may continue into fourth quarter on stabilising growth in China and global fund inflows

Investors will shift more allocations to city’s equities and it will benefit from buying by Chinese investors, according to HSBC’s asset-management unit

PUBLISHED : Tuesday, 24 October, 2017, 4:39pm
UPDATED : Tuesday, 24 October, 2017, 10:50pm

Hong Kong stocks, the best performers among Asia’s major equity markets this year, may extend their rally into the fourth quarter, as earnings improve amid stabilising growth in China and as inflows of global funds further boost valuations, according to HSBC’s fund-management joint venture unit.

Overseas investors will shift more allocations to the city’s equities and other emerging markets from the United States, where stocks are 50 per cent more expensive than Hong Kong, said Cheng Yu, a fund manager at HSBC Jintrust Fund Management. Meanwhile, Hong Kong stocks will continue to benefit from buying by Chinese mainland investors through exchange links, Cheng said.

“We are positive on Hong Kong stocks because their proportion of global allocations is still low,” he said. Shanghai-based HSBC Jintrust has US$3.7 billion in assets under management. “Their earnings-driven rally also leaves room for valuation expansion.”

Accelerating profit growth has spurred a 28 per cent gain on the Hang Seng Index this year, adding to a 54 per cent advance since the benchmark started a run-up in February last year. The 50 companies on the gauge posted an average increase of 15 per cent in first-half earnings, reversing a decline of 3.8 per cent for 2016, according to data compiled by Bloomberg.

The Hang Seng Index is valued at 12.8 estimated earnings for this year, compared with the multiple of 19.5 times for the Standard and Poor’s 500 Index, Bloomberg data shows.

However, increased volatility will be seen on the Hang Seng gauge through next year amid uncertainty, including the pace of a possible increase in interest rates in the US, Cheng said.

The probability that the Federal Reserve will raise borrowing costs in December rose to 84 per cent from 42 per cent three months ago, according to Bloomberg data.

The Hang Seng Index was down 2 per cent from an almost 10-year high set last Wednesday.