UBS is maintaining its target for the Hang Seng Index at 20,600 points for this year, with an upside of about 10 percent from current levels, mainly due to the rotation of global capital from the Japanese and Indian markets into Hong Kong and China, says Angus Chan Chi-lap, head of Hong Kong strategy at UBS Global Research.
The current rally in Hong Kong stocks can be sustained, mainly due to the revaluation of corporate earnings and the introduction of concrete policies in China, such as the mainland's cancellation of the 20 percent dividend tax on Hong Kong stock dividends for mainland investors, Chan added.
Among sectors, the bank is optimistic about technology and education stocks, along with select consumer areas such as beer and sports stocks, in addition to travel stocks such as Macau gaming stocks.
UBS Investment Bank's APAC equity strategist Karen Hizon said foreign capital is showing signs of returning to Hong Kong stocks, driven by improved confidence in mainland consumption and overall corporate earnings improvement, along with listed firms initiating stock buybacks and increasing dividends.
The bank's Japan equity strategist Nozomi Moriya said the shift from China to Japan, which has been the driver for the Japan rally last year, might stop as China is showing some recovery.
