Hong Kong’s tumbling equity market has fans


China traders have purchased a net USD4.5b of Hong Kong stocks in the past 19 sessions
Chief Investment Office15 Aug 2019
    Photo credit: AFP Photo


    CHINA & HONG KONG

    Hong Kong’s tumbling equity market may find that its biggest fans are right across the border.

    The city’s increasingly violent protests and slowing economy are not scaring dip buyers on the mainland. Onshore-based investors have purchased a net USD4.5b of Hong Kong stocks in the past 19 sessions, the longest run of inflows since February 2018, according to data compiled by Bloomberg. They are being lured by cheap valuations, with the Hang Seng Index trading at 1.1 times book value, its lowest since late 2016. The benchmark inched 0.083% higher on Wednesday (14 August) to 25,302.28.

    Hong Kong stocks are among the world’s worst performers over the past month, as escalating protests and a weakening yuan dampen the prospects of listed firms. Profits for Hang Seng Index members are forecast to drop the most this year since the Global Financial Crisis.

    Some strategists believe this is a prime time to invest in Hong Kong. They see a good opportunity for value investing and are willing to stomach any loss should the market drop further. Other market watchers are “inclined to go long” on Hong Kong stocks because the worst of the city’s unrest is likely over.

    “The results and companies’ guidance should give investors some hints and clear up their doubts,” said a strategist. – Bloomberg News.

    The Shanghai Composite Index gained 0.42% to 2,808.91.

     

    REST OF ASIA

    Indonesian President Joko Widodo is set to unveil measures to lift Southeast Asia’s largest economy from the stagnation that has marked his first term, amid rising risks from a global slowdown and escalating trade war.

    Jokowi, as Widodo is known, is set to lift government spending to a record in the 2020 budget due Friday (16 August), and is expected to set a higher target for economic growth. The president, who will begin a second five-year term in October, may also project a lower fiscal deficit target, while expanding the infrastructure drive that underpinned his first term.

    With growth slowing to a two-year low last quarter, Jokowi will need to balance the need to stimulate the economy in the short term while pursuing longer term reforms that can boost manufacturing and exports, creating jobs in a country of more than 260m people. The president may announce steps to overhaul labour laws, address the labour force’s skills gap, and shore up tax collection needed to fund welfare programmes.

    The president heads into his second term with an increased majority that gives him greater authority over parliament and a mandate to push his agenda. He has pledged to implement tough reforms to attract foreign investment and unleash the potential of Southeast Asia’s only trillion-dollar economy.

    Jokowi is expected to settle for the mid-point of a growth range of 5.2% to 5.5% agreed by the government and parliament. That could still put Indonesia on course for the fastest expansion since 2013. The budget deficit may be set in a range from 1.52% to 1.75% of gross domestic product (GDP), the government has said. That is narrower than the 2019 estimate of 1.93%, and well below the legal limit of 3%.

    Steps to improve of labour-force quality could help Indonesia boost its economic potential, as the output gap – the difference between actual and potential output – has shrunk almost to zero. The president is expected to boost spending on education to lift workers’ skill levels, seen as a crucial step toward achieving economic growth of more than 6%.

    A plan to lower corporate tax also aims to boost Indonesia’s competitiveness. Jokowi wants to attract more foreign investment and revive the country’s manufacturing sector, which accounted for less than 20% of GDP in the second quarter compared to 26% a decade ago. – Bloomberg News.

    Australia’s S&P/ASX 200 Index was down 1.93% to 6,468.30 early-Thursday (15 August) morning. The index rose 0.42% to 6,595.90 in the previous session.

    South Korea’s Kospi Index rose 0.65% to 1,938.37 on Thursday morning, reversing the previous session’s 0.85% loss to 1,925.83.

    The Taiwan Stock Exchange Weighted Index strengthened 0.63% to 10,427.73.

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