Hang Seng Index in Hong Kong Rises 38% Since January Low
Experts Analyze It Still Has Low Valuation
There is an analysis that Chinese tech stocks, which have shown a sharp rise since this year's low point, still have room to increase further.
On the 20th (local time), Bloomberg cited expert forecasts and reported that the Hong Kong Hang Seng Index has risen about 38% since the January low but still remains more than 60% below its 2021 peak, indicating potential for further gains. Chinese-related stock markets, including the Hong Kong Hang Seng Index, had been sluggish amid domestic and international headwinds such as economic downturns and escalating US-China conflicts, but showed a reversal early this year thanks to large-scale stimulus measures by Chinese authorities.
The forward price-to-earnings ratio (PER) of the Hong Kong Hang Seng Index is below 17 times. This is significantly lower than the previous 5-year average of 26 times. The US Nasdaq 100 Index is trading around 25 times. The forward PER is the current stock price divided by the expected total earnings per share (EPS) over the next 12 months. A lower figure means undervaluation, which the investment industry interprets as a higher potential for stock price appreciation.
Gian S. Cortesi, investment management fund manager at GAM Investments, said, "The value of Chinese tech stocks still looks attractive, and I believe they are far from reaching their peak."
There is also a forecast that Chinese authorities will maintain their policy of supporting innovation in tech companies for the time being, which adds momentum to the possibility of further stock market gains.
Chinese tech stocks posted earnings that exceeded market expectations in the first quarter of this year. Tencent (IT) announced on the 14th that its first-quarter revenue and net profit increased by 6% and 62% year-on-year, respectively, driven by strong performance in its advertising business. JD.com (e-commerce) and Baidu (IT) also reported better-than-expected strong results.
As corporate management improves, shareholder return measures are also increasing accordingly. According to Bloomberg Intelligence, the scale of share buybacks by major Chinese tech stocks is expected to reach a record high of $28.2 billion this year. This is a 42% surge compared to $19.8 billion last year. During the same period, dividends are expected to increase by 20%, from $8.3 billion to $10 billion. This is seen as potentially leading to a rise in Chinese tech stock prices.
Xiadong Bao, fund manager at Edmond de Rothschild Asset Management, emphasized, "Despite geopolitical concerns weighing on the Chinese stock market, Chinese tech stocks have room for further gains considering their attractive valuation compared to US tech stocks, light positioning by global investors, and improvements in fundamentals."
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