HSBC Private Banking sees strong markets despite high valuations

THE private banking arm of Hongkong and Shanghai Banking Corp. Ltd. (HSBC) expects the Philippine stock market to continue its rise this year, driven by the Asian boost in the global economic growth as well as the so-called “fourth industrial revolution.”

“After the strong rally in 2017, many investors worry about high valuations. But in our view, record-high equity index levels are not a good enough reason to stay on the sidelines,” Willem Sels, chief market strategist of HSBC Private Banking, was quoted as saying in a statement.

In a media roundtable in Makati on Wednesday, Mr. Sels cited the “pivot to Asia” and the fourth industrial revolution — or the productivity benefits brought about by more automation and artificial intelligence — as the two main reasons to be positive this year.

Fan Cheuk Wan, head of investment strategy in Asia for HSBC Private Bank, said Asia excluding Japan will lead global economic growth until 2060.

“Looking at the long term, we also expect Asia to remain the most important growth driver for the global economy, as China and India alone are projected to contribute almost 50% of global [gross domestic product] growth for the next 42 years,” Ms. Fan said, adding that this will underpin investment opportunities in the region, both for equity and credit markets.

“We project the Asian equity market to deliver stronger-than-global average growth at 13%,” she added, compared with 10% for developed markets.

Ms. Fan noted that China’s Belt and Road Initiative will bolster economic growth in Asia, as this will create new demand for real estate, trading and logistics companies across the initiative’s economic corridor.

“Asia-focused financial institutions exposed to the BRI (Belt and Road Initiative) will likely benefit from increasing cross-border financing activities to fund the related infrastructure projects,” she added.

On the domestic side, Ms. Fan said: “We have a neutral view on Philippine equities as high remittances and strong investments support robust economic growth and steady earnings performance. This helps mitigate risk of the high valuations of the Philippine stock market.”

Meanwhile, HSBC Private Bank said another reason to remain positive in investing this year is because of the “fourth industrial revolution.”

“We are not that worried about high valuations of technology stocks, as we expect [the fourth industrial revolution] to transform business models, create innovative solutions and opening up new markets, supporting strong earnings growth,” Mr. Sels said, adding that the industrial revolution makes every company a technology company. — Karl Angelo N. Vidal