Standard Chartered Bank (Hong Kong) head of investment strategy, wealth management Will Leung said the recent rebound lacked fundamental support and hence expected increasing volatility in the coming quarter.
“The stocks would need strong fundamentals to have a breakthrough, however, even the Federal Reserve chairwoman Janet Yellen didn’t show much confidence on the prospects for US economic growth… which would also put pressure on global equities,” he said in a media briefing on Thursday.
The Hong Kong benchmark Hang Seng Index has climbed more than 13% from its three and a half year low 18,278 points in mid-February.
Leung is more positive on mainland insurance sector, as well as tech companies. Although mainland lenders have generally reported mediocre earnings results over the past year and cut the dividend payout ratio, he noted the dividend yield is still high, which might seem attractive under the “yield-play” environment.
He advised investors to take profit from the gains and hold bonds, in which corporate investment grades should outperform government bonds. “Corporate investment grade bonds are hoped to ride out the storm amid improving commodity prices.”
Among equities, the bank favoured European stocks and maintained the overweight position to the region it has held since the middle of 2013. It expects European companies to grow their earnings in the coming years.
The latest adjustments included a cut of Japanese equities from “overweight” to “neutral”. “A strong Japanese yen might hurt corporate earnings in particular the exporters,” Leung explained.
The bank also raised the rating of commodities from “underweight” to “neutral”, after China’s economy has showed signs of stabilization. Still, he believed the rebound in oil prices does not necessarily mean a “turnaround”, and might face volatility going forward to reach $45-55 a barrel at the end of this year.