Sliding mainland markets add to woes as shares continue six-week decline

Hong Kong equities continued to fall on Monday on sliding mainland markets and ambiguous US jobs data, and analysts said they expect further correction in the short term.

The Hang Seng Index (HSI) tumbled 1.23 percent, or 257.09 points, to close at 20,583.52 after correcting for six weeks in a row. The Hang Seng China Enterprises Index edged down 0.72 percent to 9,103.22 points.

"In general, the valuation of the Hong Kong market is already very low, even lower than at the end of 2008. However, being cheap does not necessarily mean it'll be bullish," said Hong Hao, managing director for research at Bank of Communications International.

"We don't suggest an imminent operation, as there could be a better entrance point in the next few weeks. It's very likely for the HSI to dive below 20,000 to as low as 18,000. The market is due to be oversold," he said.

"But investors planning to hold on for longer than one year can start to monitor their positions. The valuation is there," Hong added.

UBS Group AG analyst Spencer Leung noted in a report last week that Hong Kong has entered a "black sky scenario", under which the HSI is expected to hit 19,775 by yearend, while the average price-earnings ratio will dip to 8.7 times and 8.5 times by this yearend and 2016, respectively.

The bank also predicted that Hong Kong's unemployment rate would soar to 6.4 percent by late 2016 - from 3.2 percent in 2013 - while the annual GDP would dip by 3 percent in 2016 from 2.9 percent growth in 2013.

The Shanghai Composite Index - the barometer of the mainland A-share market - sank 2.52 percent to close at 3,080.42 on Monday.

Trading in the US market was suspended on Monday due to a public holiday. The August US labor market data announced last Friday, which failed to dispel investor worries over the next US interest-rate hike, dragged the Dow Jones Industrial Average and the S&P500 down by 1.66 percent and 1.53 percent, respectively.

"Although the market has mixed feelings about the latest US labor data, we believe the first US interest-rate hike is still very likely in September. If it happened, it would be a big blow to the stock market," Hong warned, adding that uncertainties are mounting ahead of the next US Federal Reserve meeting on Sept 16 and 17.

"A shares haven't reached the bottom yet. A further correction will be negative for the Hong Kong market," he said.

Dennis Lam, research director at DBS Vickers (HK) Ltd, said on Monday that some small and mid caps will offer long-term investment opportunities with low valuation.

"We prefer small caps with stable core businesses, US-based demand, a strong cash flow and sustainable dividend yields," he said.

DBS Vickers recommended Pacific Textiles Holdings Ltd and Best Pacific International Holdings Ltd, both of which are fabric makers of global fast fashion brands; Samson Holdings Ltd, a US-targeted furniture manufacturer; and TK Group (Holdings) Ltd, a plastic-parts maker for electronic products.

emmadai@chinadailyhk.com

(HK Edition 09/08/2015 page7)