Friday, January 7, 2011

Standard and Poor's: 2011 positive for China, HK,

KUALA LUMPUR: Standard and Poor's Equity Research expects 2011 to be positive for China and Hong Kong, but it was concerned about the risks of rising interest rates and inflation.

The research house said on Friday, Jan 7 that rising interest rates and inflation would remain as the main hurdles for equity markets.

In a recently published 2011 China and Hong Kong outlook report, S&P Equity Research anticipated that the relatively low valuations of China and Hong Kong equities and excess liquidity will lead to a positive performance outlook.

"Hong Kong and China equity markets are still attractive in terms of valuations with earnings per share growth estimates of 15% to 20%," said Lorraine Tan, Director of Equity Research for Asia, Standard & Poor's.

"We believe cyclical sectors should remain the preferred investment themes as global economic growth is far from peaking, and there is room for equities to gain favor from investors particularly on rotation out of fixed income into stocks."

S&P Equity Research said it was overweight on energy, bank and industrials and underweight on consumer staples, telecommunication services and utilities, given that growth plays are likely to outperform amid the global economic pick-up.

Rising global consumption is likely to drive demand for commodities and related transport services, while bank lending activities should remain accommodative.

There are however limited fresh positive drivers for defensive stocks in 2011.

Tan added the global economic recovery should enable companies to post stronger revenues and provide a buffer to rising costs and interest expenses.

"Our 2011 target for the Hang Seng Index is 29,000 and we expect investor confidence to rise gradually as the global economy recovers and risk appetite increases. However, inflation and the prospects of rising interest rates remain key concerns for investors," she said.

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