Less than two months ago, UBS released a report discussing the overbought nature of the Hang Seng Index (HSI). Now that the index has fallen by 17 percent, UBS analyst Spencer Leung released a new report this week that includes a list of 9 stocks that Hong Kong investors should consider buying on the dip.
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According to Leung, the volatile HSI has now entered oversold territory. While the indexs forward PE had climbed to more than three standard deviations above its three-year average back in April, the recent pullback has now brought it down to 10.4, in line with its average level.
Bearish Economic Outlook Unchanged
Even though HSI stocks are much cheaper than they were two months ago, UBS maintains its bearish stance on Hong Kong's economy.
We continue to believe that three major GDP contributors (tourism, property, and re-export) could deteriorate over the next two years and have observed signs that suggest Hong Kong in-bound tourism might have peaked, Leung explains.
UBS has year-end 2015 targets for the HSI and the MCSI Hong Kong Index of 26,484 and 14,326, respectively. The HSI recently fell below even UBSs grey-sky year-end target of 23,622. At current levels, Leung believes that the HSIs risk/reward balance has once again become favorable for investors.
The report lists UBSs nine top HSI-listed stock picks. The list includes the following names:
AIA Group Cheung Kong Property Holdings CK Hutchison Holdings Hang Lung Group HSBC Holdings (NYSE:HSBC) MTR Corporation Limited Orient Overseas (International) Limited Sun Hung Kai Properties Limited Swire Pacific Limited
Investors looking for a U.S.-listed option to play Hong Kong should consider the iShares MSCI Hong Kong ETF (NYSE:EWH).
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