Local brokerage houses expect the Hang Seng Index to reach 22,500 by the end of 2012 - a 16 percent jump from the current level, propped by the low share valuation and the central government’s vigorous monetary and fiscal actions to restore growth momentum on the mainland.
CCB International Securities Ltd (CCBIS), the brokerage arm of CCB International (Holdings), said that the local share market is anticipating a rebound trend this quarter, as the HSI and the Hang Seng China Enterprise Index (HSCEI) were tipped to reach the 22,500 and 11,000 levels by end-2012 respectively, according to its “2012 third quarter market outlook” report released on Tuesday.
“Current valuation troughs in terms of price-to-earnings (P/E) ratio and price-to-book (P/B) ratio for both indexes may offer good opportunities to accumulate quality stock holdings starting this quarter,” CCBIS Managing Director and Co-head of Research Peter So said at the Tuesday press conference.
According to CCBIS data, HSI’s P/E and P/B ratios are forecasted to reach 10 times and 1.3 times multiples respectively in 2012, representing an average historical low level. For HSCEI, the P/E and P/B ratios in 2012 will hover around 7.7 times and 1.2 times multiples respectively.
“Another supporting factor is that the mainland government will implement further economic stimulus policies and financial reforms to kick-start the national economy in this quarter as the economy is showing slowing down signs due to faltering exports,” So said, adding that the central government would slash the required reserve ratio and interest rate at least once each in this quarter.
Bosera Asset Management (International) Co predicted that the rate cuts should promote credit demands to boost investments in the near term. Together with possible fiscal policy supports, the fund house expected the mainland’s economic growth to have already bottomed out in the second quarter of 2012.
“When these stimulating fiscal measures propel economic growth and hence corporate earnings growth re-acceleration, this will pose as catalysts to foster positive share market sentiment to drive up the market in this quarter,” CCBIS’s So stressed.
Besides stimulating fiscal policies, the financial reforms launch will also boost the local share market sentiment. CCBIS said that the financial innovative measures such as promoting financial disintermediation, interest rate liberalization and gradual opening of the capital account in the Qianhai area would promote a more positive sentiment in the stock market.
CCBIS recommended investors to overweight sector stocks such as insurance, financial services, consumer and technology as they are likely to benefit from mainland’s stimulus and reform measures. However, positions in shipping and telecommunication services shares should be cut because of the uncertainty of the global economy.
Sun Hung Kai Financial also echoed CCBIS’s view that mainland economic growth would be likely supported by aggressive stimulus policies. It predicted that the HSI and HSCEI would rotate around 18,000 to 22,000 and 9,500 to 12,000 respectively in the second half of 2012.
The HSI index just edged up 5.2 percent from end-2011 based on Tuesday’s closing position while HSCEI was down 5.5 percent in the same period.