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Hong Kong's battered stock market poised for a turnaround: analysts

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Hong Kong stocks will end the year on a high note after handing investors the world's worst returns this quarter.

[HONG KONG] Hong Kong stocks will end the year on a high note after handing investors the world's worst returns this quarter.

That's according to analysts in a Bloomberg survey, who say attractive valuations, easing trade tensions and stimulus measures from Beijing will help lift the Hang Seng Index about 7.9 per cent by the end of December from Wednesday's close. History is on their side, with data since 1989 showing stocks rise an average 5.9 per cent in the final three months of the calendar year, at least twice as much as any other quarter. The 28,000-point target also implies Hong Kong shares will avoid a rare back-to-back annual loss, something that hasn't happened since 2002.

Investors will be glad to see the end of a painful three months, set to be the benchmark's worst since China's stock bubble burst in 2015. Already reeling from a tumbling yuan and the Sino-US trade dispute, months of often violent street protests have added pressure on earnings for some of Hong Kong's biggest companies. The city's beleaguered stock market has lost nearly US$350 billion since the end of June. The Hang Seng Index rose 0.5 per cent as at 9.33am on Thursday.

"We are cautiously positive on Hong Kong for the rest of the year," said Jessie Guo, equity research strategist at China Merchants Securities HK Co, who sees China ramping up efforts to boost liquidity, retail consumption and industrial output.

The revival of Anheuser-Busch InBev NV's listing of its Asian unit is also expected to give a boost. The brewer pulled off one of the year's biggest initial public offerings the second time round, raising around US$5 billion only two months after scrapping the original share sale. The deal is seen propelling Hong Kong past Shanghai as the world's No 3 market for initial public offerings this year.

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"It's a good thing to have Budweiser in the market, as it increases depth and diversity to make Hong Kong more attractive," said Jackson Wong, asset management director at Amber Hill Capital Ltd.

The Hang Seng Index is lagging global peers by the most since 2006, when China's central bank began an interest rate-hiking cycle to curb excessive lending. As of Wednesday, valuations for companies on the gauge were about 10 per cent lower than the 10-year average, according to data based on projected earnings.

Selloffs accelerated in the three months since June after the US and China levied higher tariffs on each other. Adding to the gloom was worsening economic data that pointed to deepening problems in Hong Kong and on the mainland. Fitch Ratings Inc this month downgraded Hong Kong as an issuer of long-term foreign currency debt for the first time since 1995.

Challenges remain for the stock market, with no immediate resolution in sight for the city's protests or the trade war. Still, Hong Kong stocks are "seriously undervalued" at a time when dovish central banks around the world are boosting sentiment, said Gary Ching, vice-president of research department at Guosen Securities (HK).

"Hong Kong stocks are expected to recover over time," he said. "The trade tensions between US and China will unlikely escalate further, while easing measures from major central banks may push up prices for risky assets."

As at Wednesday, mainland investors had bought HK$86.9 billion (S$15.28 billion) of Hong Kong shares this quarter, heading for the highest since the first quarter last year, according to a Bloomberg calculation.

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