Hou Wey-fook, chief investment officer at DBS Bank
“The nine-year global bull market is not yet done. Especially in Asia, the market is just entering a stage of optimism, which is still far from euphoria,” Hou Wey-fook, Singapore-based chief investment officer at DBS Bank, said during a media briefing.
“Although Asian stocks are not historically cheap, they are a cheaper option compared to developed markets.”
In Asia, he highlighted investment opportunities in Hong Kong even after a year of unusually strong market performance.
In 2017, the Hang Seng Index delivered a return of 40.1%, versus the 19.4% return of the S&P 500. Last week, Hong Kong’s benchmark passed the previous all-time high attained on 30 October 2007.
Hou attributed the strong returns delivered last year and early this month to a stable and more sustainable China economy, reflected in bottom-line growth in many Chinese firms. He expects the favourable environment to continue as a driver for the Hong Kong stock market this year.
H vs A
However, the firm has a preference for Chinese companies listed in Hong Kong, or H-shares, instead of A-shares, which are shares of mainland-based companies that are listed on either the Shanghai or Shenzhen exchanges.
Comparing the two, Jason Low, the bank’s senior investment strategist, said the reasons for the H-share preference are cheaper valuations, a better regulatory environment and capital flows from mainland China.
“The cross-border trading links between the mainland and Hong Kong, such as Stock Connect, will support the sentiment in the Hong Kong stock market. The expectation of some large-cap tech firms planning to list in Hong Kong will also drive the market higher,” Low said.
Among all sectors, Low is bullish on the financial sector in Hong Kong and China, including banks and mainland insurers.
“In Hong Kong, banks may have a better earnings outlook as an interest rate hike is expected. For every 25 basis point increase in the HIBOR [Hong Kong Inter-bank Offered Rate], the net interest margin of banks is expected to rise 20-30 basis points.”
Low also highlighted the high dividend payout and reasonable price-to-book ratio of China’s banks. China’s insurers will benefit from relatively low insurance coverage on the mainland and across emerging Asia, compared to the G7 countries average, he added.
Bullish on pricey tech
Another category the bank prefers is US technology and innovation-linked stocks, even though valuations have surged in 2017. Hou said tech companies are essential in an investors’ portfolio and the stocks’ high valuations are largely backed-up by the prospect of robust earnings growth.
“Today, investors cannot go without tech stocks. It is true that the valuation is so high already, which is 5% higher than the peak in 2000. However, the profit of the tech firms rose at an average of 400% from 1999,” he said.
“In the past, people traded tech stocks based on hope, while now tech firms are traded more on the real profits.”
Hou said he would encourage clients to look at the large-cap tech stocks, in particular in the US market, which is the dominant tech market globally, offering various innovation themes.
