Hong Kong shares are ‘undervalued’ however the outlook remains to be rocky, warns strategist

Hong Kong’s market is presently undervalued, however conservative traders might wish to keep on the sidelines for now earlier than dipping their toes again in, stated Kenny Wen from Everbright Solar Hung Kai.

“In case you are comparatively conservative, I’d say you possibly can take a wait-and-see strategy, particularly should you’re already holding 40%, 50% shares,” Wen, wealth administration strategist on the agency, informed CNBC’s “Road Indicators Asia” on Wednesday.

He stated the market, pushed by sentiment surrounding points comparable to debt-ridden developer China Evergrande Group, is “nonetheless extremely unsure.”

To traders who’re “comparatively aggressive,” Wen stated: “I do agree now the Hong Kong market is undervalued, so you can begin to construct up your portfolio.”

As of its Wednesday’s shut, the benchmark Hang Seng index in Hong Kong was round 23% decrease than its February excessive. Within the third quarter alone, the index tumbled practically 15% for the interval.

The funding outlook in Hong Kong stays “extremely unsure” because the inventory market — notably institutional traders — will want time to digest various factors comparable to China’s coverage tightening on tech shares in addition to uncertainties surrounding indebted property big Evergrande, Wen stated.

For these trying to purchase “extremely unstable” shares comparable to these within the new financial system area, the strategist warned that U.S. Treasury yields have been on the rise and are more likely to weigh on the tech sector. Some examples of latest financial system shares embrace these in know-how, whereas these in sectors comparable to utilities are usually categorised as previous financial system shares.

“I believe the tech sector will stay pretty unstable,” Wen stated, warning traders towards being “too aggressive” on know-how shares within the coming weeks or months.

The benchmark 10-year Treasury yield just lately crossed 1.5% and has largely stayed above the extent since. Increased bond yields can hit tech shares — when rates of interest rise, they make the corporate’s future money flows much less worthwhile, and their shares seem overvalued.

The rise in bond yields comes because the U.S. Federal Reserve prepares to scale back bond purchases in the months ahead, normally a precursor to future fee hikes.