The year 2022 is coming to a close with a rebound in the Hang Seng index. This is our outlook for 2023 in Hong Kong’s blue-chip stock index.
Asian stocks have closed the year out with a rally as the covid rules are scrapped in China and Hong Kong. The first quarter may be slow but look for the indices to gather steam as economic data catches up.
HK50 – Monthly Chart
In the HK50, we can see on the monthly chart that support has been found at a strong zone between 16,000-18,000. The index may look to consolidate recent gains and dip, but the low could be in place for 2023.
Morgan Stanley analysts are now overweight on Asian emerging-market stocks versus developed markets from being “more confident that a new bull cycle is beginning.” Nomura analysts also see the expected recessions in the West allowing Asia to outperform as stocks provide cheaper valuations and a better fundamental outlook.
For growth in the year ahead, Goldman Sachs sees potential Chinese growth of 4.5% in 2023, compared to 3.3% in 2022. Meanwhile, Morgan Stanley estimated that GDP growth will be 5.4% in 2023. Those estimates were made before the recent reopenings.
Hong Kong followed China by dropping almost all its Covid restrictions this week. From Thursday, visitors will no longer have to do mandatory PCR tests. The vaccine pass system will also be scrapped, but compulsory masks in public places will continue. This is a dramatic move for the city and will impact the global economy.
One headwind for Hong Kong may be the US dollar peg to the HK dollar. Hedge fund manager Bill Ackman said: “The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks.” Some are questioning whether it is time to stop importing US economic policies. Hong Kong is now more synchronised with China. Still, Hong Kong’s interest rates rose from 0.5% to 4.75%, following the US Federal Reserve, when the city’s economy was weak and China was in lockdown.
Investors need to remember the more significant macro issues surrounding the peg for the year ahead and focus on buying top Hong Kong stocks at these valuations. Traders can also gain by looking for upside rallies with more critical Chinese economic data.
