The worst may have happened in Hong Kong as one of the worst performing stock markets in the world this year.
Key factors that will determine the direction Hong Kong stocks go in 2022 include: China’s focus on stable economic growth, enforcement of regulations, domestic consumption, interest rates domestically and on Wall Street, as well as the reopening of Hong Kong’s border with China. Main land.
Jun Chua, LOIM
“Even if there are still a lot of doubts about the regulations, just purely [based on the theory of] John Chua, portfolio manager and co-head of Asia and emerging markets equities at Lombard Odier Investment Managers (LOIM):
“I think it’s probably the worst behind us in terms of regulation, and I think what the government wants to do has probably been expressed. So it’s a case of implementation.
“Because most of it has been priced in the market, next year when we all start over, I think people will start to look again,” Chua said. “What may hamper these expectations is regulation…but if we don’t see more drastic action, growth should return to normal, and it should recover.”
high on the list
In all Asian stock markets except Japan, Chua believes that Hong Kong and inland China will do well in 2022 as valuations normalize. Since the Chinese authorities emphasized economic growth and hinted at stimulus measures during the just-concluded Central Economic Work Conference, they believe that the stock market will be supported by stimulus policies.
She is positive about a selection of names in the internet and local consumer segments that have good fundamentals.
Odell Lang Bruce,
“I think the internet sector is not something you completely forget,” Chua said. “In the short term we may not see them return to high earnings growth levels of 30% or 40% per year. But if you ask me, looking at the region for companies that can consistently offer their services from their mid-teens to under 20s, I think that’s It’s very commendable. So we think that more differentiated business models and less competition will likely do a little better.”
It’s also positive about hardware technology, but it tends to be more selective about renewables because ratings are really expensive.
On concerns about global inflation and interest rate hikes, Chua believes that non-profit high growth names will be affected. She added that the possible cut in interest rates by the Chinese central bank may pressure the performance of the financial sector.
Meanwhile, Odile Lange-Broussy, LOIM Portfolio Manager and Co-Head of Asian and Emerging Market Equities, believes that the revival of domestic tourism will drive decent performance for select Chinese companies.
Based on the base impact of 2021, the first quarter of 2022 could continue to be challenging as a number of companies indicated in their latest forecasts, according to Bruce. She said that in 2022 with things gradually recovering, domestic consumption and tourism business should be in good shape.
Brusi also believes that the digital marketing and online advertising business of the big Internet names will continue to enjoy decent growth, because advertising is key in the business development strategy of the big brands.
In 2021, US stocks rebounded throughout the year despite fears of inflation and a pandemic, with three major indices up as much as 24% so far. Even for inland China, with the economic slowdown, some sectors have performed well enough to push the Shenzhen and Shanghai indices up 5%.
Meanwhile in Hong Kong, the Hang Seng Index is down 14%, the Technology Index is down more than 30%, and the Chinese Enterprise Index has lost more than 22% year-to-date, as these indices contain the sectors hard hit by Chinese regulatory actions. . , including technology, the Internet, and property.
Source: Bloomberg, MSCI, Robeco
But compared to the inland A stock market, some experts still see less promise in Hong Kong in 2022.
“I prefer ‘A’ stocks over ‘H’ for two reasons. One is that there are many Chinese small and medium-sized companies (SMEs) listed on the internal market, while Hong Kong is mainly made up of big names,” the chief investment officer of Greater China told the insurer. On Big Life “Small and medium enterprises are the main force behind China’s economic growth.”
Vicki Chi, Rubico
The second is that Hong Kong stocks have been put in an awkward position. They suffer from negative news from internal and external markets, while A stock is less sensitive to external volatility,” noting that this is his personal view.
Similarly, Robeco is taking a constructive attitude towards internal Chinese stocks, while being neutral towards Hong Kong next year.
On the positive side, a possible increase in interest rates in the United States could benefit the profits of large-cap financial firms in Hong Kong in 2022. “But on the other hand, a lot of sectors [listed in Hong Kong] Depends on the opening of the border with China. It is clear that there are still doubts. Even if we open up initially, how long will it take before we are back to business as usual? “It’s still hard to say,” said Vicki Chi, Asia Pacific equity portfolio manager at Robeco while doing so. Recent Horizons 2022 webinar.
Chi emphasized that as regulatory reforms continue, companies in Hong Kong need to work harder on matters such as corporate governance and protection of minority shareholders, in order to address their long-low valuations against other markets.
Billy O, Mayer Brown
With Didi delisting in the US and plans to reclassify in Hong Kong; US sanctions on Chinese companies such as SenseTime, which still has an initial public offering (IPO) in Hong Kong despite delays; It is believed that the general trend of repatriation will help boost the stock market in Hong Kong in 2022.
Noting that the Hong Kong stock exchange will implement a new double primary listing and secondary listing requirements on the first day of 2022 to encourage more returns, Bailey O, partner in the company and securities at Mayer Brown, said they are starting to get more inquiries on the scheme. Primary or secondary listings dual in Hong Kong in the new year.
Au said implementing regulations, such as examining data security on internet companies, is about spending more resources on due diligence and reporting, rather than busting deals in their initial public offerings.