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Tuesday 26 May 2009
Liquidity inflow might keep market buoyant
The price of Hong Kong-listed blue chips has soared over the past two months, but investors may still be willing to pay for the mark-up in hopes that recent inflows of liquidity will drive further market gains.
The price of Hong Kong-listed blue chips has soared over the past two months, but investors may still be willing to pay for the mark-up in hopes that recent inflows of liquidity will drive further market gains.
Current price-earnings ratios for the Hang Seng Index have surged to between 15 and 16 times after hovering at about just eight times for almost five months until March. The H-share index has also jumped to about 16 times earnings.
And price-book ratios for both benchmarks surged by about half since early March to 1.64 and 1.97, respectively, up to Thursday, according to Bloomberg data.
Early signs of a recovery in the global economy have prompted investors to rotate out of defensive investments and pump money back into stocks. And the Hang Seng Index has managed to stage a stunning 10-week rally on speculation that the worst may be over.
“The market has staked out a certain relatively optimistic view of the future, and now it’s up to the data to actually materialise to validate that view,” said Michael Kurtz, the head of China research at Macquarie in Shanghai. “But I’m still a buyer on dips, because global liquidity is turning materially more abundant.”
The Hong Kong market has been a prime beneficiary of the new tides of liquidity as overseas investors try to tap into economic growth materialising across the border by loading up on mainland-related stocks.
Alan Lam, a Greater China equity analyst at Julius Baer (Hong Kong), said valuations in the Hang Seng Index were still only slightly higher than the long-term average, and he advised investors to buy into the benchmark if it pulled back.
Corporate earnings for mainland companies should benefit from economic support provided by the government, he added.
Valuations using current or historical information may need to be balanced with forward-looking metrics given that the mainland economy has shown recent signs of improvement.
“We talk about valuations as high because earnings are going down this year, but if we talk about valuations for next year, it’s okay,” said Ricky Tam Siu-hing, a director at Champlus Asset Management.
“If the economy is going to rebound next year, then we [may be] entering a bull market right now.”
Market watchers echoed Mr. Tam’s comments, saying stock movements tend to predate changes in the economy by six to nine months, and so valuations often seem inflated at the beginning of a bull market.
“The earnings growth may come,” Mr. Kurtz said. “But right now, it’s something that the market has to take on faith ... because it’s just not happening broad-brush yet.”
While a recovery in the mainland economy seems to have gained traction, investors may still be wondering whether the recent market rally has already priced in the upside.
Different valuations show that the Hang Seng Index is trading at its highest level in nine months or a year. And stocks around the region have already racked up substantial gains.
“After the run-up, it’s no longer table-pounding, but valuations [are still] on the cheap side,” said Bob Doll, the chief investment officer of global equities at BlackRock.
1 comment:
Liquidity inflow might keep market buoyant
Nick Westra
25 May 2009
The price of Hong Kong-listed blue chips has soared over the past two months, but investors may still be willing to pay for the mark-up in hopes that recent inflows of liquidity will drive further market gains.
Current price-earnings ratios for the Hang Seng Index have surged to between 15 and 16 times after hovering at about just eight times for almost five months until March. The H-share index has also jumped to about 16 times earnings.
And price-book ratios for both benchmarks surged by about half since early March to 1.64 and 1.97, respectively, up to Thursday, according to Bloomberg data.
Early signs of a recovery in the global economy have prompted investors to rotate out of defensive investments and pump money back into stocks. And the Hang Seng Index has managed to stage a stunning 10-week rally on speculation that the worst may be over.
“The market has staked out a certain relatively optimistic view of the future, and now it’s up to the data to actually materialise to validate that view,” said Michael Kurtz, the head of China research at Macquarie in Shanghai. “But I’m still a buyer on dips, because global liquidity is turning materially more abundant.”
The Hong Kong market has been a prime beneficiary of the new tides of liquidity as overseas investors try to tap into economic growth materialising across the border by loading up on mainland-related stocks.
Alan Lam, a Greater China equity analyst at Julius Baer (Hong Kong), said valuations in the Hang Seng Index were still only slightly higher than the long-term average, and he advised investors to buy into the benchmark if it pulled back.
Corporate earnings for mainland companies should benefit from economic support provided by the government, he added.
Valuations using current or historical information may need to be balanced with forward-looking metrics given that the mainland economy has shown recent signs of improvement.
“We talk about valuations as high because earnings are going down this year, but if we talk about valuations for next year, it’s okay,” said Ricky Tam Siu-hing, a director at Champlus Asset Management.
“If the economy is going to rebound next year, then we [may be] entering a bull market right now.”
Market watchers echoed Mr. Tam’s comments, saying stock movements tend to predate changes in the economy by six to nine months, and so valuations often seem inflated at the beginning of a bull market.
“The earnings growth may come,” Mr. Kurtz said. “But right now, it’s something that the market has to take on faith ... because it’s just not happening broad-brush yet.”
While a recovery in the mainland economy seems to have gained traction, investors may still be wondering whether the recent market rally has already priced in the upside.
Different valuations show that the Hang Seng Index is trading at its highest level in nine months or a year. And stocks around the region have already racked up substantial gains.
“After the run-up, it’s no longer table-pounding, but valuations [are still] on the cheap side,” said Bob Doll, the chief investment officer of global equities at BlackRock.
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