Market sell-off overdone says DBS, expects Hang Seng Index to hit record high in 12 months’ time

Martin Choi
·2-min read

DBS is bullish on Hong Kong stocks. The Singapore-based lender believes the market could reach a record high over the next 12 months despite the recent reversal.

Hong Kong stocks are in correction mode, having fallen for five straight days. The benchmark has eased more than 10 per cent from its recent high on February 17.

However, DBS forecasts the Hang Seng Index could reach the 33,400 level over the coming 12 months. The benchmark peaked at 33,154.12 on January 26 in 2018.

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“As the economy recovers and unemployment improves, both growth and value stocks will see good performance in terms of fundamentals,” Dennis Lam, Hong Kong and China equities strategist at DBS, said at a media briefing on Thursday.

“After the market digests recent worries, we believe the focus will shift back to earnings per share recovery and economic recovery. The recent sell-off was overdone and is a buying opportunity,” Lam said.

Their bullish view takes into consideration prospects of a post-Covid-19 economic recovery as well as continued southbound inflows into the Hong Kong stock market, said Lam.

For the benchmark to reach the 33,400 level, new economy stocks and benchmark heavyweights like Tencent Holdings and Alibaba Group Holding, would need to see solid gains. Tencent, however, has plunged 20.9 per cent from its record high on January 25, while Alibaba has fallen 17.2 per cent from its recent peak on February 17.

Lam recommended old economy companies, which will continue to “support the market, in terms of fundamentals and stock performance, while finance-related stocks will help the index move up to a new level.”

Banks and insurers will benefit from rising bond yields and interest rates, while demand for borrowing will also increase as the economy continues to recover, he said.

The Hang Seng Index has lost momentum in recent days. Photo: AFP
The Hang Seng Index has lost momentum in recent days. Photo: AFP

Tourism-related and airline stocks could also hold high risk-reward value as they have not undergone a complete recovery, Lam added.

The US Securities and Exchange Commission’s implementation of rules requiring Chinese companies to submit financial audits or face ejection from Wall Street had “positive implications” for the Hong Kong stock exchange, and would increase the speed of Chinese firms listing in the city, Lam said.

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