(Bloomberg) -- Hong Kong will outperform among Asian stock markets this year as the months-long anti-government protests may subside and the city’s financial system remains resilient, according to Citi Private Bank.
“Hong Kong’s physical and financial infrastructure were not terribly disrupted. The recovery can happen very quickly,” said Ken Peng, Asia Pacific investment strategist at Citi Private Bank. “Not just in the manufacturing sector, but also trade processing as well as tourism and retail.”
Unrest has plunged the former British colony into its first recession since the global financial crisis. Economists predict year-on-year declines will continue in the first two quarters of 2020, with tourism and retail sectors suffering steep drops.
However, Peng said the bounce-back in 2020 is going to be “a lot more aggressive than what most economists expect,” as markets have realized that there weren’t significant capital outflows and the city’s financial system was sound enough to raise billions of dollars in the capital markets last year.
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Meanwhile, the ongoing protests may quiet down later this year as the protesters will try to address their concerns by getting elected to office, rather than protesting on the streets, Peng said. The city will have a legislative council election in September.
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“This is going to be the biggest contrarian call: retail, essentially property landlords,” he said, noting these sectors have “the greatest opportunity to come back because they have been beaten so hard.”
The bank’s other investment views include:
- Prefers global equities to global fixed income with an overweight in Asian equities
- Favors high-yielding dollar corporate bonds, mainly those issued by Chinese property developers as policy relaxation could facilitate cash flow
- Favors Southeast Asian issuers among the local-currency bonds
- Avoids negative and extremely low-yielding bonds
--With assistance from Lilian Karunungan and Ameya Karve.
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