Investing.com - China International Capital Corp. (CICC) analysts are advising investors to seize the opportunity and invest in Hong Kong stocks as they anticipate a turnaround in the equity market soon.
In a research note penned by strategists such as Kevin Liu on Tuesday, CICC forecasts that both Hang Seng Index and iShares MSCI China ETF (NASDAQ:MCHI) could see an increase of 10%-15% during the latter half of this year. The expected rally is attributed to two factors: around 50% will be driven by earnings recovery while the remaining percentage depends on better valuations.
Liu wrote that currently, "Hong Kong stocks are positioned at their lowest point." His statement was made prior to the surprise reduction in short-term policy interest rate by People's Bank of China. He also expressed his belief that there will be some extent of "mean reversion" in the Hong Kong stock market.
The optimistic outlook from CICC aligns with those shared by Nomura Holdings Inc (TYO:8604) and Haitong Securities Co Ltd (HK:6837) who predict Chinese equities bouncing back due to policy stimulus measures and earnings recovery. However, Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS). maintain a more cautious stance citing concerns over currency fluctuations and geopolitical risks affecting growth prospects.
Foreign investment in Chinese stocks remains quite low but inflows worth $7.7 billion are anticipated if macroeconomic data strengthens alongside easing tensions between China and US according to CICC's analysis. Moreover, onshore investors may continue purchasing local shares driven by demand for dollar-based assets amidst expectations of yuan depreciation.
Back in December 2022, CICC had projected a significant surge ranging from 20%-25% within this year for Hong Kong benchmark index fueled primarily by hopes surrounding US interest rate cuts during Q1 along with a revival in Chinese earnings. However, the Hang Seng Index has experienced a 1.5% decline year-to-date amid disappointing macroeconomic data from China.
Liu expressed that governmental intervention might not be able to significantly lift the entire market but it can at least "secure support level at the bottom." He added that "the worst phase of foreign outflow may have passed," and recommended investors to consider purchasing shares in state-owned telecom companies offering high dividends as well as investing in information technology sector stocks.