Hong Kong stocks ended slightly down on Wednesday, with the Hang Seng Index closing at 22,134.47, having retreated from an earlier rally, while the mainland bourses extended gains on the second day of trading in 2017. Provided to China Daily

New Year's second trading day sees listless market as investors stare at mixed projections

The Hong Kong and Chinese mainland stock markets parted ways on the second day of trading in the New Year, as the local bourse failed to keep up with Tuesday's positive kick-off.

The mainland bourses, however, were still riding high, heartened by the strong manufacturing released on Tuesday that pointed to hopes that the world's second-largest economy may soon be out of the woods after a protracted slump.

Hong Kong's benchmark Hang Seng Index (HSI) ended flat on Wednesday, having 0.07 percent, or 15.93 points, sliced off at 22,134.47, while the Hang Seng China Enterprises Index edged down 0.2 percent, or 18.56 points, to 9,440.99.

Investors on the mainland kept up Tuesday's momentum, with the Shanghai Composite Index rising 0.73 percent to 3,158.79 and the Shenzhen benchmark gauge jumping 1.15 percent to 2,008.79.

Looking ahead, banks espoused mixed projections of the future course of equity markets this year.

Standard Chartered painted a rosy picture for stocks over other assets with a warning that the faster-than-expected monetary tightening path in the United States, as well as inflationary pressures arising from President-elect Donald Trump's tough economic policies to stimulate the economy, threaten to confront global equity markets.

US and Japanese stocks, in particular, are seen to have the potential to be the best performers in 2017, with bright spots coming from small-cap and tech stocks in the US market.

The bank said that, as the Chinese mainland remains on track to switch from an export-driven to a consumer-impelled economy in its quest for a new growth engine, the so-called "new economy" sector stands out as another highlight.

On the same page is HSBC Private Bank, which favors "new economy" stocks in sectors like the internet, information technology, healthcare, new energy, travel, consumption and education services.

Despite mounting prospects of the global economy picking up and pumping life into equity markets, Will Leung, Hong Kong-based head of investment strategy of wealth management at Standard Chartered, believed that both mainland and Hong Kong stocks still face a period of adjustment this year.

HSBC Private Bank has stuck to its guns, and appears to be more bullish on mainland and Hong Kong stocks.

Typically, the lender is overweight on US and Asian equities, especially equities on the Chinese mainland, India and Indonesia, as it sees better domestically-driven economic growth opportunities in the two markets, compared to Europe, and support from structural reform and pro-growth policies.

Fan Cheuk-wan, head of investment strategy at HSBC Private Bank, said they prefer Hong Kong stocks, adding that quality and undervalued mainland and Hong Kong blue chips with prominent labels, as well as small and medium-cap growth stocks listed in the SAR, will continue to gain from the mainland's continued market liberalization.

In her view, the newly launched Shenzhen-Hong Kong Stock Connect - the second stocks cross-trading link between the mainland and the SAR - will exert a positive liquidity impact on the Hong Kong market due to strong southbound capital flows, propelled by the growing demand of Chinese investors for overseas asset diversification as the yuan depreciates further.

"Basically, it's a sure thing that the yuan will break the level of 7 against the greenback in 2017," said Leung.

He described the latest move by the State Administration for Foreign Exchange to reset the annual quota for individuals' foreign exchange purchases at no more than $50,000 as "nothing new".

What matters, he said, is that the Chinese currency faces a test of confidence and it would really take time and efforts by mainland policymakers to dispel worries over the depreciation trend that could spook investors.

Contact the writers at sophia@chinadailyhk.com

(HK Edition 01/05/2017 page9)