Hong Kong Stocks Seen Breaching 25,000 for First Time Since 2008

Hong Kong stocks will rise next year as China’s growth stabilizes and the global economic outlook improves, according to RBC Global Asset Management and HSBC Global Asset Management.

The Hang Seng Index may advance to 25,000 in 2013, the first time since May 22, 2008, according to the median estimate of 11 strategists surveyed by Bloomberg News. That’s a 10 percent increase from yesterday’s close of 22659.78. The Hang Seng China Enterprises Index of mainland companies may rise to 12,500, also a 10 percent gain from yesterday, according to the estimates.

Investors are turning bullish on the outlook for China’s economy after reports on industrial production and retail sales exceeded estimates and the government pledged to promote the growth of cities. Trade in companies from mainland China made up 70 percent of the value of share transactions on Hong Kong’s equity market during November, according to bourse operator Hong Kong Exchanges & Clearing Ltd.

“I’m optimistic about Hong Kong stocks next year,” said Yoji Takeda, who helps oversee about $1.2 billion as Hong Kong- based head of Asian equities at RBC. “The Chinese and U.S. economies are gradually recovering. Loose monetary policies are creating high liquidity, which would support the market.”

Hong Kong’s benchmark index has gained 23 percent this year, led by developers and banks, and is poised to erase last year’s losses. The gauge soared 52 percent in 2009 to complete its best year in a decade on massive stimulus in China and the U.S. The index declined 20 percent last year as China’s efforts to rein in asset prices combined with Europe’s spreading debt crisis and U.S. budget squabbling to cut earnings prospects at home and abroad.

Bullish Survey

More investors than ever say they are bullish about China’s economic outlook, a Bank of America Corp. monthly survey showed on Dec. 18, predicting that China’s economy will grow at a faster rate next year. A net 40 percent said the global economy will improve and a net 11 percent said profits will increase, the most bullish results in at least 20 months, the survey also showed.

China, under the new leadership headed by Xi Jinping, will promote economic reforms through measures such as tax cuts, and will seek higher-quality growth next year with urbanization a driver, the official Xinhua News Agency reported Dec. 16. China has set its initial target for economic growth at 7.5 percent for a second year, two bank executives and a regulatory official briefed on the matter said Dec. 18.

A Bloomberg Poll published Nov. 30 showed confidence in China’s economy was the highest in more than a year.

Equity Prospects

“In 2013, with the macro picture settling down a bit more, it’s a far better outlook than the one we went into in 2012 with and maybe equities have gotten a chance to do really rather well,” said Bill Maldonado, chief investment officer for Asia Pacific at HSBC Global Asset Management, which manages about $417 billion. “Increasingly you’re almost forced into equities as the only asset that has really any hope of producing a real return.”

The Hang Seng Index (HSI)’s gains this year pushed the value of the gauge to 11.9 times estimated earnings. That compares with about 13.9 times for the Standard & Poor’s 500 Index and 12.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Easing Rally

Hong Kong shares have rallied 16 percent through yesterday since the end of August, as European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond- purchase program while the U.S. Federal Reserve began a third round of so-called quantitative easing. Hong Kong’s de facto central bank intervened in October for the first time since 2009 to defend the local currency’s peg to the U.S. dollar as money rushed in.

“Hot money flows into Hong Kong will continue for the foreseeable future,” said Mark Konyn, chief executive officer of Cathay Conning Asset Management Ltd., a joint venture between Conning & Co. and Cathay Financial Holding Co. Conning managed almost $91 billion at the end of September, according to its website. “A collapse is not likely given valuations however momentum will depend on fundamentals and improving conditions on the mainland.”

Strategists Forecasts for Hong Kong Stocks in 2013:


Firm                      Strategist        HSI       HSCEI
==============================================================
Bank of Communications      --              25,000
BNP                      Arthur Kwong       25,000
CCBI                                        26,000    12,750
Citigroup                   --              22,700
CICC                        --                        12,500
CLSA                        --              24,500    11,600
Credit Suisse               --              23,800    12,000
HSBC                        --              24,000    13,000
Goldman Sachs               --              25,000    12,500
First Shanghai           Linus Yip          23,500
ICBC                                        25,000    12,500
Mitsubishi UFJ Asset    Michiya Tomita      27,000

--------------------------------------------------------------
Average                                     24,682    12,407
Median                                      25,000    12,500
High                                        27,000    13,000
Low                                         22,700    11,600

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Sophia Yan in Hong Kong at sophiayan@bloomberg.net; Billy Chan in Hong Kong at bchan101@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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