Take a look before you leap: Hong Kong for investors in 2012

Retail sales are expected to decline from 24.8 per cent last year to 14 per cent this year. In addition, Hong Kong’s inflation rate remained a high 6.4 per cent during February, with consumption growth weakened to 15.7 per cent from 24.9 per cent last year. For the longer term, the inflationary pressure is likely to be contained this year, benefiting from easing food price inflation and flat housing rentals. Inflation may dip below 4 per cent briefly in the middle of the year, averaging about 4 per cent for the year. The unemployment rate jumped 0.2 per cent to a seven-month high of 3.4 per cent in three months up to the end of February.  

In this first quarter, Hong Kong’s real GDP is forecast to grow at a slow pace of 1.7 per cent, but is expected to increase in the second half of the year because of a modest recovery in external demand. Buoyed by gradual recovery in growth prospects for Europe and the US, Hong Kong’s growth was forecasted by analysts to be 3 per cent this year, versus 5 per cent last year. For investment in Hong Kong this year, the major potential factors to recognise are a massive outflow of “hot money”, an economic hard-landing in China, and a sharp drop in asset prices.

For investors desiring exposure on Hong Kong’s stock exchange, I recommend investing in Hang Seng Index (HSI) stocks. HSI is the most widely quoted gauge of the Hong Kong stock market and includes the largest and most liquid stocks listed, with transparency in operation and reliability of valuations. Stocks listed on the HSI are free-float-adjusted for transparent representation. A 15-per-cent cap is applied to avoid single-stock domination. The HSI is also the main indicator of overall market performance in Hong Kong. Its 48 constituent companies represent about 60 per cent of the market capitalisation of the Hong Kong bourse with a total market value of HK$12,225 million.

Investors can invest in the Hang Seng Index through a mutual fund that invests in exchange-traded funds (ETFs) based on the returns of the Hang Seng Index. Investors should choose a fund with a foreign-exchange hedging policy in order to be able to expect a return in line with the movements of the Hang Seng Index.

 

Jarulag Ruangsuwan is senior vice president of the Sales and Marketing Department at Asset Plus Fund Management.