Caixin
Dec 29, 2017 08:35 PM
FINANCE

Hong Kong Shares Win Big in 2017, Dwarfing Shanghai, Shenzhen

Hong Kong’s Hang Seng Index closed at 29,919.15 on Friday, the last trading day of the year. Last month, the city’s benchmark index briefly surpassed the 30,000-point mark for the first time in 10 years. Photo: Visual China
Hong Kong’s Hang Seng Index closed at 29,919.15 on Friday, the last trading day of the year. Last month, the city’s benchmark index briefly surpassed the 30,000-point mark for the first time in 10 years. Photo: Visual China

Hong Kong shares had a stellar year in 2017, rising 36% and eclipsing the single-digit gains of the Shanghai and Shenzhen markets.

Looking into 2018, analysts say Hong Kong’s bull market still has legs, though it would be hard to repeat the strong gains this year. Chinese mainland stocks, on the other hand, may have to plod on under the shadow of tighter liquidity induced by regulators, though MSCI Inc.’s inclusion of A-Shares, improving corporate earnings and better economic growth prospects could give mainland markets a much-needed boost.

Hong Kong’s Hang Seng Index closed at 29,919.15 Friday, the last trading day of the year. The city’s benchmark briefly surpassed the 30,000-point mark for the first time in 10 years last month. Analysts attributed the bull run to improved corporate earnings, capital inflows and exceptional gains by some heavyweights such as Tencent Holdings Ltd.

Major A-share indexes, on the other hand, have lagged behind most other markets this year amid tighter regulations on new listings, corporate mergers and credit growth. The Shanghai Composite Index gained 6.6% to end at 3,307.17, while the Shenzhen Component Index rose 8.4%. Meanwhile, start-up board ChiNext lost 10.7% this year as investors fled to blue chips for safety.

“For (A-share) traders, 2018 will be another year of coping with liquidity constraints,” said Hong Hao, managing director and head of research of BoCom International.

“As off-balance-sheet deleveraging continues, credit growth will continue to decelerate, and market interest rates will stay elevated. As such, it is still difficult to see a raging bull market ahead,” Hong said.

Policy headwinds might continue to work against mainland stocks, analysts say. New, more stringent frameworks governing the asset-management and trust sectors, as well as tighter rules overseeing microlending and new stock-listing activities will suck up some liquidity from the markets and slow their gains.

“New rules governing asset management products will affect stock-market liquidity, as off-balance-sheet channelling business is basically banned,” Wendy Liu, managing director and head of China equity research with Nomura International.

“But that’s ultimately necessary. Instead of chasing cash with cash, it’s better to boost returns from companies’ profitability. All we need is a bit more patience,” Liu said.

Looking forward, the A-share market will gain more interest, particularly from offshore investors trading through the stock-connect programs from Hong Kong. China’s A-shares will officially crack MSCI Inc.’s global indexes next June, and some analysts expect up to $18 billion of fresh funds may flow into Chinese markets.

And in Hong Kong, the bull is still running.

“In 2017, the driving force for the Hang Seng index’s upside includes both ETF (exchange-traded fund) growth as well as valuation re-rating from a deprived level to above-average level,” Selina Sia, Head of Greater China Equity Research at Credit Suisse, told Caixin.

However, this year’s high growth rate is “unlikely to carry through to 2018,” despite the Hang Seng index being likely to continue rising, Sia said. That’s partly because the index will be growing from a much higher base next year. “The 2018 Hang Seng index upside is likely to be driven by earnings growth instead,” she said.

Ivan Li, a research director at DBS Vickers Securities, also said the Hang Seng Index is likely to continue rising in 2018, to as high as 33,000. But, in the second half of 2018, the pace could slow, as corporate earnings also slow, Li said.

In 2017, both markets had star performers that registered some eye-popping gains.

In Hong Kong, one of the best performers of the year was Tencent Holdings Ltd., which saw its price grow 114.2% before closing at HK$408.20 Friday. Tencent, which owns the hugely popular WeChat social media app, became the first Chinese company to be valued at more than $500 billion, when its market capitalization rose to HK$4.17 trillion on Nov. 21, temporarily surpassing Facebook.

Another standout stock was Geely Automobile Holdings Ltd., which rose 265.7% this year, closing at HK$27.10, with a market cap of HK$231.4 billion.

On the Chinese mainland, one of the star performers was Kweichow Moutai Co. The Shanghai-listed shares of the largest baiju-maker in China more than doubled, touching an all-time high of 719.11 yuan on Friday. It is now the third most valuable stock in China, after Industrial and Commercial Bank of China and Agricultural Bank of China.

Contact reporter Teng Jing Xuan (jingxuanteng@caixin.com) and Leng Cheng (chengleng@caixin.com)

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