Hong Kong's Hang Seng Closes at Record High
January 16 2018 - 2:59AM
Dow Jones News
By Gregor Stuart Hunter
The Hang Seng Index set a record closing high Tuesday, capping a
surge that put Hong Kong stocks among the world's best performers
in 2017.
The benchmark rose 1.8% to 31904.75, to top the previous high
set on Oct. 30, 2007, just a few weeks after the Dow Jones
Industrial Average and S&P 500 peaked ahead of the global
financial crisis.
The Hang Seng, which includes HSBC Holdings PLC and Chinese
internet giant Tencent Holdings Ltd., was the latest global
benchmark to top a previous record in the past year.
After skidding into the end of 2016 due to worries about a U.S.
trade war with China, Hong Kong stocks in 2017 rose in part due to
improved earnings from Tencent and insurer AIA Group Ltd. Equities
also benefited from an influx of mainland Chinese money that came
from the Shanghai-Hong Kong Stock Connect.
But lingering worries about China's economy kept most foreign
investors out of Hong Kong stocks last year, said Joshua Crabb,
head of Asian equities at Old Mutual Global Investors. The Hang
Seng rose 36% in 2017.
"It was only a year and a half ago that people thought China was
going to explode," he added.
Following a banner 2017, some fund managers and analysts say
headwinds are approaching.
"We may see some kind of pullback, maybe after Chinese New
Year," said Arthur Kwong, head of Asia-Pacific equities at BNP
Paribas Investment Partners.
Mr. Crabb said fears about the Chinese banks kept many global
fund managers away from that sector, which accounts for nearly 20%
of the Hang Seng's composition. But easing concerns about the
health of corporate China may bring a rally in the year ahead, he
added.
The sector has started 2018 strongly, with China Construction
Bank Corp. climbing 12.5% this month to approach its highest point
since 2010.
Mr. Kwong of BNP Paribas isn't alone in expressing near-term
caution. Citi expects the Hang Seng will fall to 29500 by the end
of this year, about 7.5% lower than where it is now, as most
anticipated earnings improvement has been priced in.
Meanwhile, Hong Kong stocks look "somewhat on the pricey side,"
said Johan Jooste, chief investment officer at Bank of Singapore,
in a news conference last week.
The Hang Seng trades with a forward price-to-earnings ratio of
13.4, according to data from FactSet. That is far lower than the
21.9 multiple it reached at its October 2007 peak, and relatively
low compared with the S&P 500's 18.6.
However, the Hang Seng figure is depressed by single-digit
multiples for certain stocks, especially Chinese banks. China
Construction, the fourth-largest component in the Hang Seng, trades
just 6 times projected earnings for the next year, according to
data from S&P Global Market Intelligence.
In comparison, Tencent has a price-to-earnings ratio of
41.8.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
(END) Dow Jones Newswires
January 16, 2018 03:44 ET (08:44 GMT)
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