Salient to Investors:

  • Amundi Asset Management, Credit Suisse and Sumitomo Mitsui Trust Bank expect Hong Kong stocks to struggle as reduced Fed stimulus weighs on developers and banks that comprise over 35 percent of the index.
  • Ayaz Ebrahim at Amundi Asset Mgmt says China is too cheap and is selling Hong Kong stocks.
  • Standard Chartered, BNP Paribas and Citigroup have recently downgraded their recommendations on Hong Kong shares.
  • HSBC is underweight Hong Kong citing higher borrowing costs, falling retail sales, the pro-democracy movement and weak corporate earnings. HSBC is and overweight China.
  • Fan Cheuk Wan at Credit Suisse expects China to outperform Hong Kong in Q3 2014 on growth stabilization.
  • Nicholas Yeo at Aberdeen Asset said companies in Hong Kong offer better governance and financial reporting, and higher regulatory requirements, so are more transparent and better run than those in China yet offer similar ways to profit from growth there. Yeo says they cannot find sufficient quality companies in China.
  • BNP Paribas expects property prices to fall 20 percent by the end of 2016. Hong Kong Monetary Authority reports household debt at a record 62% of GDP.
  • Alain Bokobza at Societe Generale cites the higher risk premium on Hong Kong shares, especially in construction and real estate, and prefers Chinese shares because low inflation gives China room to fight falling property prices with looser monetary policy.
  • Andrew Swan at BlackRock is overweight China, citing central bank support, shareholder-friendly reform in the energy industry, and low valuations: he is underweight Hong Kong.
  • Katsumi Takagaki at Sumitomo Mitsui Trust (HK) says Chinese companies will benefit more from economic recovery and looser monetary policy than MSCI Hong Kong companies.
  • The MSCI Hong Kong Index is at 16 times earnings versus 9.8 for the MSCI China index, the widest gap since 2002. Hong Kong is second on the World Bank’s ease of doing business survey, China is 96th.
  • Federal fund futures indicate a 62 percent chance the Fed will raise rates to at least 0.5 percent by July 2015.

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