City expected to gain from capital relocation to emerging markets
HONG KONG - Goldman Sachs Group Inc raised its 12-month target for Hong Kong's Hang Seng Index to 29,000, saying the city has the most to gain from extra liquidity released by quantitative easing programs and mainland growth.
Hong Kong will benefit most from a capital relocation away from developed to emerging markets, Goldman analysts led by Kinger Lau wrote in a report on Wednesday.
Inflation and low economic growth are reducing the allure of developed-market assets, the analysts said.
Goldman analysts forecast in December the Hang Seng Index may reach about 27,000 by the end of 2010.
The main Hang Seng Index has gained 10 percent this year on expectation that growth in corporate earnings will weather concerns about the pace of the US economic recovery and mainland steps to curb rising property prices. Shares in the gauge trade at an average 15.3 times estimated earnings, compared with about 17.2 times at the start of the year.
Easy liquidity and Hong Kong's stable regulatory environment make the city's real estate market attractive, and values, which are at 13-year highs, are likely to appreciate, the report said.
Sun Hung Kai Properties Ltd, the city's No 1 developer by market value, jumped 6.6 percent after Goldman Sachs named the stock as a possible beneficiary of liquidity. Cosco Pacific Ltd, a container-terminal unit of Asia's largest shipping company by market value, surged 5.6 percent.
Cheap borrowing costs are driving asset prices higher in the city, and Hong Kong Monetary Authority Chief Executive Officer Norman Chan said Oct 18 that a housing bubble poses the biggest risk to financial stability in Asia.
Hong Kong's government has introduced higher down payment ratios since August and pledged to increase land supply to cool the city's property market, where values have jumped 50 percent since the start of 2009.
Emerging economies may use currency appreciation and temporary capital controls to cope with money inflows sparked by US monetary easing, Joseph Yam, former head of the Hong Kong Monetary Authority, said in a speech in Beijing on Wednesday.
"A combination of strong domestic growth and abundant global liquidity is how we would describe the investment thesis for Hong Kong," the analysts wrote.
The MSCI Hong Kong Index offers a better proxy for Hong Kong growth than the Hang Seng Index, for which mainland stocks make up 56 percent of market capitalization, the analysts said. They raised their forecast for the MSCI gauge to 14,000 from 12,200.
The analysts said Hong Kong property stocks would benefit from liquidity-driven real estate inflation.