Investors in Hong Kong will need to assess the effects of China's fiscal policies as well as corporate earnings before getting excited about the sustainability of the stock market rally, according to DBS Private Bank.

The bank's in-house target for the Hang Seng Index at the end of 2024 is 20,300, which was set before surprise policy announcements from Beijing last month pushed the benchmark to a 32-month high of 23,099.78 on Monday.

"The target can overshoot to 22,800 but that's a technical overshoot," Michelle Ho, the head of investment strategy at the chief investment office (North Asia), said at a briefing in Hong Kong on Tuesday. "Fundamentally we are waiting for more fiscal policies to come out and see how that turns into company earnings."

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"Beijing's policy measures are unprecedented, and it is a booster for the sentiment," Ho added.

Hong Kong's market cooled off on Tuesday, with a record HK$620 billion worth of shares changing hands. It plunged 9.4 per cent in its worst day since 2008, wiping out all the gains it made while markets on the mainland were shut for a long holiday.

Meanwhile, mainland-listed stocks rallied after Chinese markets reopened. The CSI 300 Index, which tracks the largest companies in Shanghai and Shenzhen, closed 5.9 per cent higher after surging as much as 10.8 per cent earlier.

The initial euphoria surrounding China's onshore and offshore stocks waned after an eagerly anticipated news conference by the National Development and Reform Commission (NDRC) did not deliver the additional stimulus goodies that market participants were expecting.

On a broader note, the Singaporean private bank believes "it is now time for Asean equities to shine" as stocks from the Association of Southeast Asian Nations will benefit from lower global interest rates and a weaker US dollar.

The bank is bullish on stocks that are tapped into long-term secular growth trends like technology, healthcare, ageing populations, and the rise of middle-class spending in China.

"We've always had faith in the Chinese government to gradually introduce enough measures to turn around and boost their economy within the China market," Ho said. The bull market in stocks is expected to continue and will largely be led by AI-driven stocks, which she said is in its infancy and has immense growth potential.

Overall, additional rate cuts from the US Federal Reserve will provide some momentum for all assets that carry risk.

In the coming quarter, DBS Private Bank has a preference for Chinese banks for their income and dividend yielding ability, in addition to shares of technology, insurance and e-commerce firms. The bank maintained its preference for bonds and is overweight on developed-market government and corporate bonds.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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