Weekly Commentary – Hang Sang Index will rise by 120 percent from today before the end of calendar year 2015?
Morgan Stanley, a well-known investment bank in Wall Street, released a report in mid-March. MS said Hang Seng Index can achieve 50,000 points (120 percent higher from today level) before the end of calendar year 2015.
MS points out easy money and accelerating economic growth, historical precedent of 6 to 8 years peak to peak, low valuation of Hang Seng Index nowadays and QDII initiatives from China’s government are 4 main catalysts to support its view. 50,000 points is the result of long-term bull scenario.
Some investors may take a contrary view to the report and think the bullish outlook from MS is a signal of market peak. However, market players are not extremely excited nowadays and the valuation of Hang Seng Index is not expensive, talk of market peak may be too early at this moment.
If you examine the report’s assumption carefully, you may question whether 50,000 points can be achieved in next 3 years. The accelerating of global and Chinese GDP growth are positive catalysts to the equity market, however, central banks may withdraw the easy money from the market if economic growth back to track. Moreover, MS believes QDII may expand further in the future and Hong Kong equity can be benefited from it, however, the timing and scale are still uncertain and MS’s assumption may not able to hold.
However, the report says current valuation of Hong Kong equity is not expensive, and the 6 to 8 years peak to peak cycle, are two good reasons to send Hang Seng Index to the higher level. Even 50,000 points seem too far away from us, MS’s bottom-up bull case for the Hang Seng of 38,794 points still seem touchable before the end of calendar 2015. (Around 70 percent upward potential from today level)
As parliament election of Germany is expected to held in September this year, Germany Chancellor Merkel may want to take the case of Cyprus to demonstrate she will take a tougher line to those countries without fiscal disciplinary, such as France and Italy, in order to get more votes from voters. Investors should not forget ex-French president was lost in the presidential election last year because of his pro-Eurozone attitude.
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