Brokerage expects good times for HK's Hang Seng Index

Stock markets are expected to make a promising start in the Year of the Dog with the benchmark Hang Seng Index notching up impressive returns before bottoming out in the middle of 2018, Hong Kong brokerage CLSA said in its astrological predictions for the lunar year.

The brokerage expects pharmaceuticals and consumer sectors to see impressive gains in Hong Kong, but warned investors to scout for value-picks later in the year.

The Lunar New Year, also known as the Chinese New Year, falls on Feb 16 this year, with the calendar switching over from the Year of the Rooster to the Year of the Dog.

Now into its 24th edition, CLSA's annual report draws on findings from feng shui masters, who look at the five elements in Chinese astrology, and offer advice on issues ranging from health, wealth, career and marriage based on the country's ancient practice of positioning objects and buildings in harmony with nature to ensure good fortune.

The iconic Feng Shui Index, a tongue-in-cheek forecast put forth every year by CLSA on the influences of the Chinese zodiac on Hong Kong stocks, expects the Hang Seng Index to have a good start and then pull back, but predicted it could rebound in the fourth quarter and have a modest rise for the whole year of 2018.

Echoing the findings from CLSA's report, the gauge started the new year on a strong note, advancing as much as 7.8 percent in the first month of 2018, extending last year's 36 percent rally that made Hong Kong stocks the best performer among major stock markets across the globe in 2017.

Hong Kong stocks plunged 1,649.80 points, or 5.12 percent, to close at 30,595.42 points amid panic selling on Tuesday, as mounting fears swept across the local market in the wake of a US market meltdown overnight.

After a flying start in January, the Hang Seng Index will brace for some choppy months in March and claw its way downward to the summer, said the report.

Despite a few ups and downs, the gauge still managed to rule the roost to end the year on a higher perch overall, it noted.

With some wild swings ahead, "the Dog represents duty and loyalty and is a sign of defence and protection. It is a good time to be level-headed and err on the side of caution," said CLSA analyst Alec So.

Throughout the Year of the Dog, the wood and fire elements will take the lead in influence, putting wood-related sectors like pharmaceuticals and consumer on course to enjoy the largest gains.

"Fire-related industries such as telecommunications, internet, technology and utilities are also on track to embrace a decent year," said Sally Chan, equity research associate at CLSA.

"Water-related sectors like casinos and transportation will play their roles in turn to have some good months in the second half of the year. But investors should avoid moving their eggs into metal-related industries like banks, financials, autos and machinery, as the Year of the Dog lacks the metal element," Chan added.