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HSBC Global Research lowered its year-end target for the Hang Seng Index from 22,490 to 19,580 and cut that for the Hang Seng China Enterprises Index from 8,170 to 6,680.
However, it believed H-shares are still attractively valued, with the current HSCEI equivalent to a forecasted P/E ratio of 8.4x over the next 12 months, well below the five-year average of 11.4x.
HSBC favored new energy vehicles, aviation and state-owned real estate and it’s also focusing on renewable energy, where capacity expansion is on track, with installed wind and solar capacity up 12% year over year. In addition, consumer goods, airlines and duty-free companies will benefit from the economic recovery, and the situation is also favorable to individual Internet stocks, it said.
HSBC believed that the US Federal Reserve’s policy shift will make Hong Kong less attractive. While the Fed’s turnaround is normally good for the stock market, it may not necessarily be good for Hong Kong stock market given the heavy weighting of financial stocks in the market, it said.
On the contrary, the market is expecting interest rates to hit the ceiling in the coming months, which is believed to be favorable to the real estate sector.