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What Singapore PBs are saying about Chinese equities

What Singapore PBs are saying about Chinese equities

Three Singapore’s private banks are upbeat about Hong Kong’s stock market, which posted encouraging figures in 2017.

The Hang Seng Index hit all-time high this week, and according to wealth managers, DBS, UOB, and the Bank of Singapore, the trend is set to continue on the back of president Xi Jinping’s financial and structural reforms.

Returning 54.33%, the MSCI China index, which includes large and mid-cap stocks across China-H shares, B-shares, red chips, P-chips and foreign listings, also generated good returns for investors in 2017.

Against this backdrop, Citywire Asia spoke to three private banks in Singapore about their expectations for 2018.

DBS Private Bank

DBS is overweight China and Hong Kong equities this year, with a preference for H-shares over A-shares.

Even though MSCI is planning to include A-shares in its emerging markets index, the market remains largely a sentiment-driven play as it is dominated by domestic investors,’ said a representative from DBS’ CIO office.

The bank believes valuations remain attractive in H-shares at 9x forward price-to-earnings and corporate earnings are expected to stay robust this year.

In its sectoral preferences, DBS is backing Chinese construction companies, which are expected to see 10% growth in value of overseas projects because of the Belt and Road initiative; Chinese banks, which ‘offer both good value and income’; and Chinese insurance players based on a multi-year growth forecast, especially for life insurance.

It is also betting on state-owned enterprises, e-commerce and new technology in China.

UOB Private Bank

UOB is overweight MSCI China and offshore Chinese equities for 2018, and is backing information technology, consumer discretionary and financials on the back of policy tightening and structural reforms.

‘While Chinese equity valuations are currently high, they are not yet stretched and we do not see much risk of a de-rating as long as policymakers are able to steer the economy clear of macro risks such as drastic capital outflows or widespread debt defaults,’ said Dr Neo Teng Hwee, chief investment officer and head of investment products and solutions.

The reforms will reduce risk of instability in the financial system by reigning in shadow banking, he added.

Bank of Singapore

Unlike its peers, Bank of Singapore is neutral on Chinese equities but sees investment opportunities in the consumer, environmental and telecom sectors based on positive structural trends.

Louisa Fok, China equity strategist said the bank is positive on Chinese banks because of improving asset quality, receding downward pressure on return-on-equity and attractive valuations.

The private banks is also backing information technology, including robotics and fintech, and telecom.

Fok said China’s telecom revenues from data centres, cloud and big data services amounted to RMB 17.9 billion in 2016, surging 30% year-on-year and accounting for 12% of total revenue.

However, she warned of stretched valuations in the IT sector.

‘We view any share price pullback in the IT sector as potential accumulation opportunities,’ she said

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