Despite weakened Q1 confidence, stocks still look attractive

Nearly 90 percent of Hong Kong investors still favor equities as their top investment for the next six months despite weakened confidence in the first quarter due to disasters in Japan and crises in the Middle East, the latest investor confidence index released Wednesday by JPMorgan Asset Management (JPMAM) shows.

The index survey, conducted during the first quarter of 2011, polled 505 retail investors in Hong Kong aged between 30 and 60 with a minimum of five years' experience investing in more than HK$100,000 worth of liquid assets.

The first quarter saw a decline in Hong Kong investors' confidence. The index, recorded at 126 in December, fell to 120 in the latest release. Recent events including Japan's earthquake and unrest in the Middle East are said to have swayed the investment climate, with investors turning more cautious.

Up to 69 percent of the respondents now believe that the stock market will be a bull and bear fight, up from 60 percent in the December survey. Reflecting the uncertainty, investors have readjusted their investment strategies, with the proportion expecting to invest in funds in the next six months rising to 51 percent from 44 percent last time around.

Foreign currencies have replaced IPO subscription as the third most popular investment product, voted by 41 percent of the respondents, compared with 30 percent previously. IPO subscriptions, however, have lost favor, with the proportion of interested investors tumbling to 27 percent from 33 percent.

The change of preference, according to Eddy Wong, head of intermediary distribution at JPMAM, indicates that investors are making a bet "growth in foreign currencies other than the US dollar will still be on an uptrend".

"Investors are becoming more cautious in their asset allocation", Wong said. However, despite investing with more caution, investors still have equities as their top pick, with the number of those interested only slightly easing to 88 percent from 92 percent previously.

Still, 63 percent of respondents expect the benchmark Hang Seng Index to rise going forward, with 40 percent believing that the HSI will trade above 24,001 in six months' time.

Overall, Hong Kong investors are upbeat about the stock market," said Wong. Among other things, valuations still look "reasonable", he noted.

And the best choice, according to Emerson Yip, the investment manager for Greater China at JPMAM, are Greater China equities, which see a good chance of "outrunning" their competitors overseas.

Compelling valuations, coupled with strong earnings outlook on the back of vibrant economic growth, will underpin "attractive buying opportunities", said Yip.

China's fourth interest-rate hike in six months announced on April 5 prompted strategists at the world's big banks to recommend stocks in the fastest-growing major economy. Credit Suisse Group AG raised its 12-month forecast for the Hang Seng China Enterprises Index, HSBC Holdings Plc boosted its rating on China to "overweight", while Macquarie Group Ltd said investors should increase holdings. Citigroup Inc advised buying China to bet on gains.

China Daily

(HK Edition 04/14/2011 page2)