Investor confidence in Hong Kong market strong

The JP Morgan investor confidence index shows that investors are more optimistic, and believe Hong Kong is one of the markets with high growth potential in 2017.

“While 65% of them [investors] think that the Hong Kong stock market is still in a bull-and-bear fight situation, 50% expect the Hang Seng Index to trade above 24,000 points in six months’ time as compared to 18% in the last quarter,” says Karina Law, vice president of retail distribution at JP Morgan AM.

“Although there is no drastic change towards the investment strategy, investors are taking a more aggressive investment approach and are more willing to overweight equities.”

The Hang Seng Index, Hong Kong Economic Environment, Hong Kong Investment Environment and Atmosphere, and Value of Investment Portfolio Sub-Indices hover about the same levels as seen in Q4 2016 with marginal increments of a few points. The amount of investment sees further strength with the Sub-Index rising from 107 to 112. The Global Economic Environment Sub-Index retreats to almost neutral from 111 to 104.

Political uncertainty remains one of the key concerns in 2017. “2016 was a year of political surprises, but the net impact on asset returns was limited. A similar scenario may play out in 2017, which has a heavy calendar of political events,” says Tai Hui, chief market strategist Asia, at JP Morgan AM.

“Risk factors, such as high expectations for US corporate earnings growth and policy change, political risks in Europe, and a more aggressive Fed, could be triggers for consolidations or even corrections. Yet, we see these corrections as opportunities to add risk assets and build a stronger portfolio given the sound macroeconomic backdrop.”

With the US equity valuation looking stretched, diversifying into other regions could enhance the asset allocation and improve the performance of the portfolio.

“Despite political noise, EM and Europe are potential outperformers: both have strong economic momentum and are seeing stabilization and improvement in earnings expectations. We also favour corporate credit and EM debt for generating higher potential return,” says Hui.