The allocation for Hong Kong stocks in the second half of the year 2022 should be focusing on consumption, information technology and healthcare sectors, and on high dividend yield stocks
(1) Consumption: With the improvement of economic data in the second half of the year, the selection of Hong Kong stocks may be centred on consumption: automobiles, catering, and consumer electronics. Beer and dairy products are good buys too. While, food sector can be selected based on its defensive position. (2) Information technology and healthcare: Although the current Sino-US interest rate spread is still in a state of inversion and weakening, the interest rate spread is expected to gradually widen in the second half of the year, so there are still upside opportunities for the information technology and healthcare sectors of Hong Kong stocks.
Review of Hong Kong stocks in the first half of 2022: Although Hong Kong stocks showed downward trend in 1H of 2022, the rebound since mid-March showed the resilience of Hong Kong stocks. It should be remembered tht the energy, telecommunications, financial sectors achieved positive returns in the first half of the year, meanwhile sectors such as healthcare, consumer discretionary, and information technology also exhibited steady rebound after bottoming out in mid-March.
The dawning of the Hong Kong stocks is near. Looking forward to the second half of the year, although the external strong dollar environment will have a certain impact on the capital of Hong Kong stocks, under the support of factors such as profit recovery, attractive valuation, state capital inflow from Beijing and the development of the offshore RMB market, Hong Kong stocks in their current position have experienced after a long-term decline, it already has an irresistable valuation, and the dawn of a rise in shocks has now appeared. in particular:
First, anticipated recovery in the profitability. At the macroeconomic level, there is a strong positive correlation between the quarterly year-on-year growth rate of China’s nominal GDP and the cumulative year-on-year growth rate of net profit of the Hang Seng Index. China’s economic recovery in the second half of the year is expected to lead to an overall recovery in the profits of Hong Kong stocks. At the industry level, information technology, consumption, energy and raw materials, and utilities are expected to contribute to the increase in EBIT in 2022.
Second, the attractive valuation of the battered stocks provides a safety net for investors. It could provide a nice entry point for investors.
Third, external shocks on capital still exist, but there is no need to worry too much. Under the current pegged-exchange rate system, the strong US dollar is expected to restrict Hong Kong stocks in the second half of the year, but there is no need to worry too much: the overall valuation of Hong Kong stocks is currently relatively low, and the absolute value of the US dollar index has been at a high level since 2001. The impact of Hong Kong stocks in the first half of the year may weaken.
Risk warning: U.S. inflation printed a red-hot high hence it may be leading to the US Federal Reserve to have a hawkish stance on interest rates; the domestic macroeconomic recovery might be performing less than desired which may hurt the corporate earnings thus profitability. Third, the volatility of inflow of funds into Hong Kong stock increases, which greatly affects the uptrend.
(This article is the opinion piece of the writer, it doesn’t serve as an advisory piece)
