SINGAPORE 鈥 Hong Kong stocks are cheap but may miss out on the benefits of China鈥檚 economic support, analysts at Goldman Sachs said, while Morgan Stanley warned tensions and tariffs could hurt, as both brokerages downgraded market forecasts.
Goldman Sachs trimmed its recommendation on Hong Kong shares to 鈥渦nderweight鈥 from 鈥渕arket weight.鈥
Morgan Stanley downgraded China to slight 鈥渦nderweight鈥 from 鈥渆qual weight鈥 in emerging markets, with analysts noting that efforts to revive the economy and a Republican sweep of Congress and the White House could significantly impact markets.
鈥淲e expect even stronger headwinds on corporate earnings and market valuation in the coming months,鈥 Morgan Stanley analysts said in a note dated Nov. 17.
Morgan Stanley鈥檚 base-case target for China鈥檚 CSI300 is 4,200 by end-2025, about 4.7% above the 4,011 level traded earlier in the day. It projects the Hang Seng at 19,400, slightly below Monday鈥檚 19,655.
Goldman Sachs is more bullish on mainland stocks, setting a 2025 target on the CSI300 at 4,600, but expects weakness in Hong Kong companies on the MSCI Hong Kong index.
鈥淎lthough valuations are not demanding, Hong Kong does not offer much economic or earnings growth,鈥 Goldman analysts said in an Asia-Pacific portfolio strategy note published on Sunday.
鈥淭he property and retail sectors remain under pressure and the economy may not benefit as much from policy support in China as it previously has, given China鈥檚 focus on bolstering the domestic economy.鈥
Both US banks expect the yuan to weaken, with Goldman forecasting a dollar/yuan exchange rate of 7.5 at the end of next year and Morgan Stanley 7.6. The yuan traded at 7.2371 per dollar on Monday.
Both brokerages recommend investing in mainland shares over Hong Kong-listed ones, as the mainland market is less sensitive to global sentiment or currency fluctuations. 鈥 Reuters
