Image Credits - CGTN
Hong Kong’s once-soaring stock market has resembled a phoenix trapped in ashes for two years. Battered by a relentless downpour of headwinds, the Hang Seng Index has shed a staggering 45% since its near-record peak in 2021, marking the worst performance among major global indices.
HSBC Jintrust Fund Management, a mainland China venture of banking giant HSBC, paints a cautiously optimistic picture. Their bullish outlook hinges on various factors, each a potential spark to reignite the market’s fire. The key catalyst, they believe, lies across the Pacific: a potential dovish pivot by the U.S. Federal Reserve. Expectations of an interest-rate cut in mid-2024 could trigger a reversal of capital flight from Hong Kong, easing the liquidity squeeze that has choked its financial arteries.
Increased policy support aimed at revitalizing the property market and mitigating the fallout from regulatory crackdowns could provide a much-needed shot in the arm to Chinese companies, many of which are listed on the Hang Seng. As a result, HSBC Jintrust anticipates corporate earnings growth exceeding 9% next year.
Its current state of deep-seated despair has driven valuations to historically low levels. The Hang Seng currently trades at a paltry 5.7 times realized earnings, making it the cheapest major market in the world. This bargain-basement valuation presents a compelling opportunity for investors with a longer-term vision.
Adding to the potential for a turnaround is the recent resilience of the Hang Seng Tech Index. Despite initial anxieties over China’s video game regulations, the index has staged a remarkable comeback, suggesting a return of investor confidence in the high-growth potential of Hong Kong’s tech sector.
However, HSBC Jintrust acknowledges that the road to recovery won’t be paved with gold. The initial months of 2024 might still see subdued market activity, with a gradual uptick later in the year. Their focus for potential winners? Internet and consumer giants, whose earnings could outperform expectations, and companies offering high dividend yields, will become increasingly attractive as U.S. interest rates decline.
The revival of Hong Kong’s stock market would represent a phoenix rising from the ashes, its wings beating with renewed hope and resilience. While the path ahead may be uncertain, the confluence of potential catalysts – easing U.S. monetary policy, China’s economic recovery efforts, and historically low valuations – suggests that 2024 could mark a turning point for Hong Kong’s long-suffering equities. As investor sentiment shifts and positive earnings surprises emerge, the city’s beleaguered index could finally break free from its downward spiral and embark on a long-awaited ascent.