港股策略：2019下半年展望，乱云飞渡仍从容.docxVIP

Please refer to the last page for important disclosures Please refer to the last page for important disclosures Hong Kong Strategy: 2H19 outlook Given growing overseas risks, weakened economic data, and a depreciating renminbi, the Hong Kong stock market has corrected since May, in line with our expectations. We note valuations have recovered to a reasonable level, while earnings forecasts still lag behind; as such, we expect investors to focus more on fundamentals in 2H19. We think the market may keep fluctuating in the second half of the year. Traditional defensive sectors are our top picks in the short term. Our positive view on consumer sectors, particularly consumer services, has not changed, but the high valuation risk in the upcoming half-year results season cannot be ignored. We maintain our positive view on the telecommunication equipment and software services industries in the long term. Valuation recovery surpassed earnings rebound. The stock index rose c.15% in the first four months of 2019; however, earnings forecasts were not revised up at the same pace. Given growing overseas uncertainties and weakened domestic economic data, earnings forecasts became more pessimistic in 2Q19. Although the spread between dividend yields and the risk-free rate shows that the Hong Kong market remains attractive to absolute-return-oriented investors, we estimate the potential valuation downside risk at 5-10% in a global synchronised recession scenario. Consumer sectors are popular despite fragile valuation. We believe sector performance can be broken down into two components, namely earnings forecast changes and valuation changes, and note most share price increases were a result of valuation recoveries. By contrast, the performance of the insurance and software services industries was mainly supported by upward earnings forecast revisions. As risk aversion rises during the upcoming half-year results season, we believe industries with strong fundamentals will be popu