Shanghai Commercial Bank Wealth Management Investment Outlook Q4 2017
Global Market and Currency Outlook A two-way traffic The Fed s balance sheet normalisation did not result in the prominent impact some hoped for. Summer sessions saw largely sideways trading in the US dollar. On the one hand, the market is losing faith in US s tax reform plan; on the other hand, North Korea s backing down on its threat to attack Guam has restored confidence in US dollar. We expect a seesaw price action to last until late November. To many s surprise, this summer has been a lively period for the sterling. It is worth considering the possibility that the Bank of England is about to embark on a series of rate hikes. Therefore, we still believe there is value in GBP topside. In Eurozone, the recovery story is the side we prefer to hold. We do not see many reasons to chase JPY higher, as carry trade will come to the fore once political risk fades. For commodity-linked currencies, both the Reserve Bank of Australia and Reserve Bank of New Zealand threaten to resort to direct intervention in extreme situations. The Aussie and the kiwi could have room for adjustments, but in an environment where investors struggle to secure yield, there are few indications pointing to a drastic correction. Asia Equity Markets Outlook Asia is also home to world class exporters across many other sectors that are benefitting from growth in attractive market niches. Although aggregate valuations have risen in recent months as markets have rallied, multiples are not yet at worrying levels and Schroders continue to see long term opportunities in our favoured areas of the markets. We continue to see attractive long term growth opportunities in the technology sectors both hardware and ecommerce and some of the more domestically-focused service sectors and financials across the region that are benefitting from rising income levels and evolving consumption patterns. China / Hong Kong Equity Market The year 2017 will be a year of political transition in China, which means that economic stability is going to be vital. With the 19th National Party Congress taking place in the autumn of 2017, Schroders expect that the cyclical momentum in the economy, which was witnessed in Q1, will be sustained throughout the year. Meanwhile, we believe monetary policy is expected to shift to a mild tightening stance this year. Given a sharp growth in wealth management products and non-bank financial assets in recent years, the regulator has finally attempted to deleverage growth in the system. Schroders believe the additional liquidity from southbound flows under the Stock Connect scheme, and positive earnings, are both factors that could drive markets higher. From a valuation perspective, domestic companies in the bank and commercial property sectors, as well as diversified regional and global conglomerates, look attractive on a longer-term view. On the other hand, we are cautious in the Hong Kong residential property market, as prices in Hong Kong continue to edge up on the back of southbound liquidity. That said, the outlook for commercial property is more resilient, with rents still rising, albeit modestly, for Grade-A office buildings. We continue like consumer/service sectors, such as the internet, tourism and education, on the back of the positive long-term outlook for consumer demand in China. Meanwhile, we remain overweight certain telecoms stocks given an expected rise in free cash flow generation over the next two years. We have also reduced the underweight positions in Chinese financials by adding to some insurance names given rising bond yields and stable premium growth expected for 2017. Conclusion As ever, the portfolio s approach to stock selection is focused on trying to identify those businesses and management teams that are well placed to grow and prosper over the longer term under different macro outcomes, rather than taking large binary directional bets on policy decisions where we have very little transparency or ability to generate alpha.
Important Information Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy. Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document. The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments. Derivatives carry a high degree of risk and should only be considered by sophisticated investors. This material including the website has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited. Q4 Hong Kong Equity Market Outlook The Federal Reserve is moving to reduce its balance sheet Forecast of volatility of Hong Kong Stocks Hong Kong stocks have risen for eight consecutive months and the Hang Seng Index has already accumulated an increase of almost 6000 points. It peaked at 28,160 points in mid-september, its highest in over 28 months (before the deadline for this article). From valuation analysis, Bloomberg indicated that the current price-to-earnings ratio (P/E ratio) of the Hang Seng Index (HSI) is approximately 13.99 times, its highest level in the past five years. Various favourable factors, coupled with capital allocation, may have triggered a new round of a bull market. However, there have been no major reverse movements in the Hong Kong stock market during the year and investors should be aware of risk management, make timely adjustments to their portfolio allocation ratios and reduce some stock holdings. The HSI volatility ratio is forecast to move between 26,000 points and 32,000 points in this quarter. Given that world stock markets have largely been driven by valuation re-rating stocks year-to-date and Mainland enterprises delivered satisfactory profitability in the first half of the year, earnings per share of MSCI constituent stocks rose by a significant 22% in the first half of 2017, as compared to the same period last year. Profits experienced their biggest jump since 2010 and, therefore, profitability remains the key performance indicator of the Mainland and Hong Kong stock markets in the second half of the year. In addition, the recent continuous strong performance of the Renminbi, the seventh consecutive months increase of China s foreign exchange reserves and MSCI inclusion for China A shares, have coupled together to drive up the price of Mainland A shares; the Shanghai Stock Exchange (SSE) Composite Index hold above the critical 3,300 points. Both markets have shown an exuberance in shares trading. The stock markets are expected to be stable before the 19th National Congress of the Chinese Communist Party with various favourable factors keeping the momentum. If capital inflows to Southern China continue, this may facilitate the valuation re-rating of Hong Kong stocks, or possibly push the Index up to challenge new highs. As regards risk factors, the US Federal Reserve will soon reduce its balance sheet. Accordingly, it is rather difficult to assess the impact of global central banks tightening monetary policy on risk asset prices. Furthermore, geopolitical risks such as the tension caused by North Korea is on-going, plus Hong Kong stocks have recorded increases for three consecutive quarters, and many investors may take profits and then reduce shareholdings. As a result, Hong Kong stocks in the fourth quarter are expected to see greater fluctuations. In terms of investment strategy, stocks of IT, automobiles and real estate enjoy strong positions and, accordingly, buying the relevant shares is suggested. The current P/E ratio of the China Index is 9.19, which is still 11.6 times lower than the five-year average. Special attention can be given to stocks of Mainland banks and insurance companies. Chinese securities trading companies will be the foremost beneficiary of MSCI inclusion for China A shares. If the trend of a bull market continues, the Hong Kong Stock Exchange (0388.HK) will be an inevitable choice.
SCB 2017 Q3 Top 10 Best-Selling Funds* 1 Source: AllianceBernstein Hong Kong Limited, Allianz Global Investors Asia Pacific Limited, J.P. Morgan Asset Management, Franklin Templeton Investments, UBS Asset Management (Hong Kong) Limited, Value Partners Group Limitedas of 31 July 2017 2 Source: Bloomberg, as of 31 August 2017 Remarks * SCB 2017 Q3 Top 10 Best-Selling Funds lists the top 10 best-selling funds among all funds distributed by Shanghai Commercial Bank Limited (the Bank ) during 1 July 2017 to 15 September 2017, based on the total subscription and switching amount (in HKD or equivalent) for each fund. The funds shown in the table under SCB 2017 Q3 Top 10 Best-Selling Funds are sorted by ascending alphabetical order, without reference to the total subscription amount involved for each fund. Result of the Top 10 Best-Selling Funds is provided for information and reference only and is not intended to constitute any investment advice or opinion. The funds referred to in this document constitute only a portion of the funds that are available for distribution from the Bank and references to such funds in this document do not constitute recommendations over any other fund available from the Bank. The data used to calculate the year to date cumulative returns are as of 31 August 2017. Fund inception date refers to the fund s first share class inception date. Shanghai Commercial Bank Limited Product Risk Rating ("Product Risk Rating") is assigned by the Bank to each distributing investment fund in a scale of 1 to 5, with 1 indicating the lowest risk category and 5 being the highest. Product Risk Rating of each investment fund is assigned by the Bank according to its product features and corresponding risk factors. The categorization results may be different from those provided by the respective fund houses. The Bank may revise the Product Risk Rating assigned to an investment fund from time to time without prior notice. For more information on the Product Risk Rating and the respective investment preference, please visit your nearest Shanghai Commercial Bank Limited branch. Volatility is a statistical measure of risk. The above 3 year volatility has been annualised for comparison and is calculated by using the annualised standard deviation of the monthly returns during 1 September 2014 to 31 August 2017. Risk relative to return can be measured by 3-year Sharpe Ratio. Sharpe Ratio at the table above is a measure of the fund s performance against the 3-month US Treasury bill rate (risk free investment return), adjusted for risk. A relatively high positive ratio indicates that the fund has a relatively high risk-adjusted return historically. Data is calculated by using the returns from 1 September 2014 to 31 August 2017. In respect of each relevant fund, the returns were calculated based on the principle of NAV-to-NAV of the relevant fund, with reinvestment of all dividends (if any). Only the funds that have an investment track record of at least 6 months as of the information captured date will have their percentage returns displayed.
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