Value Partners’ equity investment team expects Hong Kong stocks to continue its upward trend in 2018 as China’s pledge to deliver quality and sustainable growth, together with Hong Kong’s recent initiatives to bring in additional market liquidity are expected to shore up investor sentiment for Chinese stocks.
 
Chung Man Wing, Investment Director of Value Partners said, “2017 is a year of recovery for Hong Kong and Chinese stocks.  It has been a very strong rally that is driven by structural instead of cyclical factors.  China has been making further progress to deliver quality and sustainable growth via reforms in the services sector and state-owned enterprises, as well as financial deleveraging.
 
“As China continues to move towards a more efficient economy with higher return on equity and lower gearing, this will get more international investors turned to Chinese stocks, particularly those listed in Hong Kong, which is a freely accessible market.”
 
As of 31 October 2017, MSCI China Index, which represents Chinese stocks listing offshore, has risen 48.9% year-to-date, compared with a full-year return of 0.9% in 2016.
 
“Elsewhere in Hong Kong, a number of initiatives are being discussed to add breadth and depth to the listing universe of the city.  By luring a broader range of companies to list in Hong Kong, this will bolster liquidity and vibrancy of the local bourse,” said Chung.
 
Investment themes for 2018
Among the Chinese stock universe, there are three types of companies that are more preferred with better investment potential.
 
1. Consumption upgrade
As China’s urbanization and the growth of middle class continue, this will unleash huge consumption demand, particularly those for consumption discretionary goods and services such as insurance services.
 
2. Industrial upgrade
The application of automation, robotics and information technology in Asia’s services and manufacturing industries has helped Asian corporates move up the global value chain.  Within Asia, China and South Korea are the key countries demonstrating the industrial upgrade and this can be shown in the increases in exports and patent applications.
 
3. Technology leaders
Asia, particularly in China, has demonstrated its ability to foster world-class high-technology companies and the robust growth in the technology space.  Currently, China has the largest online retail market in the world and it is still growing at a double digit rate year-on-year.