Markets fail to find sound directives
Updated: 2016-01-15 09:24
By Emma Dai in Hong Kong(HK Edition)
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Hong Kong and mainland equity markets closed flat on Thursday following recent declines, with asset managers foreseeing continued volatility in the region, and favoring European and Japanese stocks.
The benchmark Hang Seng Index (HSI) opened at 1.79 percent lower, but edged up during the day before ending at 19,817.41 - down 0.59 percent, or 117.47 points, from its previous close.
The index has lost 2,351 points, having plummeted more than 10 percent since its Dec 23 peak at 22,168.
Market on the mainland staged a rebound on Thursday after the CSI 300 - the big-cap index - had evaporated more than 15 percent, or 575 points, so far this year. Despite opening 2.51 percent lower, the index advanced to close at 3,221.57 - up 2.08 percent, or 65.69 points.
After rebounding for three consecutive days, the offshore renminbi, or CNH, weakened against the US dollar by 0.85 percent to 6.6230 as of 6:14 pm on Thursday.
Alexander Lee Ho-wan, strategist at DBS Vickers Securities, believed the HSI will not see a massive retreat although "downward leeway still exists". "However, there's not much of an upside catalyst either."
While continuing to favor new economy sectors, including healthcare and e-commerce amid decelerating growth on the mainland, he recommended high yield picks, such as major mainland banks and HSBC, provided the country can manage a soft landing.
"As long as the non-performing loan ratio doesn't go up and credit costs stay within 1 percent of total loan books, banks should be able to maintain their current dividend levels," Lee said.
Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said that, compared with A shares, the MSCI China is more attractive from a valuation standpoint, but the re-rating prospect remains uncertain.
He noted that economic and financial macro risks are on the rise in China, as the economy battles imbalances and continues with market liberalization. Although the authorities are expected to leverage hard-landing risks with policy tools, Yao said "potential policy errors could present themselves as an additional risk".
Allianz Global Investors, with assets of 427 billion euros ($465.8 billion) under its management at the end of September, expects developed markets to outperform emerging ones this year.
Neil Dwane, global strategist at Allianz, prefers European and Japanese high-dividend stocks over Asian non-commodity emerging markets, whereas US high yield bonds and Asian US dollar bonds are favored for fixed income. "Europe is growing for the first time in three to four years," he said. "Europe is restricted with its unemployment rate down and retail sales up. We see credit growth in 2015 for the first time in years. Geopolitical risks will lead to volatility this year, but the ECB (European Central Bank) is determined with its monetary easing policies. It looks solid and attractive."
Dwane added that although, culturally, European domestic investors prefer bonds and even deposits to equities, interest rates have been negative for savings, and bonds contributing "no returns". "It's only a matter of time before domestic investors turn to risk assets," he said.
(HK Edition 01/15/2016 page8)