HSBC said it downgraded stocks in Singapore and Hong Kong as the two major financial centers in Asia face the risk of slower economic growth this year.
The largest bank in Europe lowered its stance on Singapore stocks to "neutral" from "overweight," and downgraded Hong Kong equities from "neutral" to "underweight," it said in a report dated March 26, which outlined the bank's Asian equity strategy for the second-quarter.
The two economies are key bases for global banks and major businesses seeking opportunities in Asia.
Stock markets in Singapore and Hong Kong have been rising this year after suffering losses in 2018. The Straits Times Index has moved 4.22 percent higher so far this year, while the Hang Seng Index jumped 11.15 percent in the same period.
But the small and open nature of both economies mean the two countries are highly exposed to swings in the global environment, HSBC said.
In Singapore, sectors that focus on the domestic market have failed to lift the economy, the bank said, adding it would in turn limit how much companies can grow. That's despite the stock exchange offering attractive valuations and the third highest yield in Asia at around 4.8 percent, added HSBC.
"Growth is unexciting," the bank's analysts wrote. "Overall, we find other markets offer a more attractive proposition than Singapore, so we move our stance to neutral."
The analysts were more bearish on Hong Kong. They said business conditions in the Chinese special administrative region are weighed down by "weak demand from China, slowing global growth and uncertainty around a tariff war" in the near term.
"Against this backdrop, firms continue to cut back on their purchasing and hiring activities," HSBC said.
What to buy?
The London-headquartered bank has kept its "overweight" stance on China, India and the Philippines.
HSBC said stocks in these sectors would do well in the three countries:
- China: Internet, financials, property, healthcare and consumer
- India: Banks, consumer discretionary, metals, energy and real estate
- Philippines: Financials and real estate
Analysts at the bank said their analysis showed that valuations are still low in those three countries. They also expect a shift to easier monetary policies in those economies, which are usually favorable for corporate investments and the stock markets.
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