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What Goes Around Comes Around
Year 2010 has sneaked in quietly and it is time for the annual market review and preview again. Before we move on to details, I have to declare that I am a "bull" and thus I always tend to have a bullish view, which is not always correct but at least it gives people a better feeling.
Let's take a look at our 2009 scoreboard: our original forecasts pointed to a bullish view with the HSI could top 18,000 points on the back of historical statistics as well as low PE ratio plus high dividend yield. The results are: the HSI soared 52% after sinking 48% in 2008, exceeding most expectations. It is quite certain to conclude that bulls had a fairly comfortable year in 2009.
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 So, does that mean 2010 will be another "great" year? It depends on your definition of "great". The answer would be "No" if you expect a 40-50% gain while it is likely to be "Yes" if you can settle for a much lower return rate. Statistical data shows that the HSI rarely jumped more than 40% in consecutive years during the past four decades. On the other hand, it was likely (63% probability) to be another positive year if it gained more than 40% in the previous year. Also, it was highly unusual that the benchmark would drop more than 40% under the same condition. In short, we are likely to see some mild gains this year while chances for a substantial correction are low. |
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Meanwhile, governments worldwide have stepped in the financial market after the global financial crisis broke out in late 2008 and there is an increasing noise for "exit" strategy this year, including reduction of liquidity or interest rate hike. Put it this way: medicines are needed if a person is sick and "exit" means stop taking medicines. It is not necessarily a bad thing if the person's health is back to normal. However, it would be a terrible mistake if that is not the case. We do not think the U.S. is ready for any interest rate hike in near-term based on the current situation but equity market may start to price in the factor in the second quarter of 2010.
Fundamentally speaking, the HSI is trading at slightly higher than 16 times (Year 2010) PER, marginally above the long-term historical average multiple of 15 times while it is still a long way to go compared to the bull market scenario (over 20 times PER). In terms of stock picks, we prefer those sectors with ties to economic recovery or might benefit from favourable government policies, such as banking, consumer, industrial and export, and new energy etc.
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Source: Mr. Peter Pak, Vice President
BOCI Research Limited
Information provided on 12 January 2010 |
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Risk Disclosure:
This document is prepared for reference purpose only. The above views are the personal opinions of the author. The content herein is not intended to provide professional or investment advice and should not be relied upon as such. This document is prepared on the basis of materials obtained from sources believed to be reliable but accepts no liability in relation to the use of this document or the content herein for any purpose. The Bank does not make any representation or warranty and accept no responsibility or liability as to the accuracy, completeness or correctness of the content herein. The content herein is subject to change without notice. You are advised to seek independent financial and professional advice before you trade or invest. You should carefully consider whether trading or investment is suitable in light of your own financial position and investment objectives. This document does not constitute an offer or an invitation to any person to sell, purchase, subscribe or transact any product or service mentioned herein. Investment involves risk. The prices of securities, funds and other investment products may fluctuate, sometimes dramatically. The price of securities, funds and other investment products may move up or down, and may become valueless. It is likely that losses will be incurred rather than profits made as a result of buying and selling securities, funds and other investment products. Past performance is not indicative of future performance. You should carefully read the offering documents for details before making any investment decision. The Bank, its related companies, their directors and/or employees may have positions in, and may effect transaction in, the products and services mentioned herein. Foreign currency investments are subject to exchange rate fluctuations which may provide both opportunities and risks. The fluctuation in the exchange rate of foreign currency may result in losses in the event that the customer converts the foreign currency into Hong Kong dollars or other foreign currencies. Bank of China (Hong Kong) Limited will not be liable for the quality of products and services provided by the participating merchants. The tables and diagrams are for reference only. |
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