Hong Kong stocks set to gallop: CLSA

Jan 22, 2014

The brokerage looks into its crystal ball for its 20th annual Fung Shui Index and sees bullish equity markets and a property plunge in HK. But things could be dicey for Alibaba’s Jack Ma.

The Chinese Year of the Wood Horse will bring bullish stock markets, particularly in Hong Kong, although property prices in the city may sink up to 10%, forecasts CLSA.

Publishing its 20th annual tongue and cheek Feng Shui Index report, based on the Chinese Zodiac, the brokerage concludes that this year’s nag is un toro in toto – pure bull from teeth to tail.

Horses in the fortune chart are powerful and linked to the element of fire, which is associated with driving investment sentiment. They are also well positioned in the 12-year Chinese Zodiac cycle as they appear seventh. Energy, or qi, is considered to have been spent halfway through a cycle, so the horse is believed to bring a second wind.

CLSA anticipates that Hong Kong’s Hang Seng Index will perform particularly well, since fire is its “lucky element”. It is forecasting Hong Kong’s bourse to hit 28,105 points this year, comfortably surpassing last year’s peak of 24,038 on December 2.

In terms of sectors, CLSA analyst Emily Lam expects solid performance from businesses associated with wood – retail, soft commodities, plantations, agriculture and forestry – and with fire – internet, technology, telecoms, oil and gas and power supplies.

But CLSA advises investors to avoid sectors tied to metal – automotive, banks, insurers and metals and machinery – and earth – building materials, construction, property and pharmaceuticals.

Meanwhile, the outlook for Hong Kong property appears bleak. CLSA anticipates a 10% decline in real estate prices this year, followed by a 5% drop in 2015.

Historically property markets do not perform well in years of the wooden horse – the bubonic plague of 1894 and a devastating fire in 1954 had a shattering effect on prices, and CLSA notes there was a fire in Hong Kong’s North Point in December on the cusp of the new year, a bad omen for the property market.

Looking ahead, those who own property in Sheung Wan, Kennedy Town, Yuen Long and Long Ping – neighbourhoods rather harshly categorised as “nightmares” – should expect their value to plunge.

But the outlooks for Japanese Prime Minister Shinzo Abe and newly elected US Federal Reserve chairwoman Janet Yellen look more upbeat.

While questions remain over whether Abe will be able to pull off the third and final arrow of Abenomics – the three-pronged regeneration plan for the Japanese economy – CLSA analysts suggest Abe has enough “giddy-up to earn a good, hard ride”, although note “it will be tough during the final six months, and it won’t come cheap”.

The stars appear to be aligning for Yellen. Her wu xing (five elementary energies) weightings are “pure Goldilocks – a ‘just-right’ balance of safe, sensible, sure and steady, with enough off-kilter to keep it real”. September apparently threatens to stress test Yellen’s mettle, but overall her charts exude confidence.

However, Alibaba Group’s Jack Ma won’t fare as well this year, they say.

Although CLSA would love to report that Alibaba will have a widely successful IPO in Hong Kong, it instead anticipates “a sea of troubles that puts us in mind of the Odyssey [Greek playwright Homer’s poem about Odysseus’s arduous journey home], though you couldn’t ask for better than Ma’s wood-water combination at the helm".