The past year has been a bumpy year for Hong Kong stocks, which surged to the peak in early September, plummeted over the rest of the month and were range bound until the end of the year. Approaching 2015, Hong Kong stocks appear to be stretched based on several OTAS factors, including EPS Momentum that has turned negative, directors who have been net sellers with over $344mm pulled out in the last month, and implied volatility at a significantly high level compared to its 2 year average.
The companies with the most downgrades in EPS Momentum are mainly from the energy and retail sectors: MIE, Hengshi Mining, Phoenix Satellite, Esprit Holdings, Lianhua and NVC Lightings. These stocks’ EPS estimates have fallen by over 20% in the last month. In contrast, due to the weak outlook for the oil price and recent Chinese policy favoring financials, the transportation and financial sectors’ EPS estimates have increased noticeably: with China Yuran Food Group, China Shipping Containers, Global Brands Group, Haitong Securities, United Company, China Eastern Airlines, Midland Holdings, China Galaxy Securities, China Southern Airlines, Air China and Citic Securities’ EPS estimates all raised over 20% in the past one month.
Activities of directors disposing company shares increased significantly in December, with a large portion from the energy and materials sectors, including well-known names such as Kunlun Energy, Nine Dragons Paper and Asia Cement. Implied volatility is at an 18 month high and suggests that Hong Kong stocks will be +/- 12.5% by the end of Q1 2015.
Will it be a good time to dispose of the sluggish energy and materials sectors and invest more into transportation and finance in 2015?
To know about how to pick the top stocks in 2015.