Standard Chartered upbeat on 2014 China equity markets

HONG KONG -- Standard Chartered, one of the leading international banking groups, forecast Tuesday that the mainland and Hong Kong equity markets will fare well in 2014 on improving investor sentiment encouraged by Beijing's commitment to market reform and subsiding political risks.

"The recently concluded Third Plenum in China suggested the country's equity market will subsequently become more market-driven," said Erwin Sanft, head of Standard Chartered's China and Hong Kong Equity Research.

"Deregulation should hinder earnings growth, but thanks to the resumption of pro-market policies, China's equity discount to global markets could be reduced to 15-30 percent from 40 percent. Higher dividend payout ratios and rising free-flow percentages should support share prices," he said.

Sanft said he expects the Hang Seng Index to trade between 24,000 and 28,000 points and the H-share index between 12,000 and 15,000 points next year.

Although reducing support to the state sector may hamper earnings growth for State-owned enterprises, the private sector's share of the economy will naturally regain growth momentum, Sanft said.

Within mainland sectors, energy, industrials, materials, auto, retail, property and insurance are rated overweight by Standard Chartered while banks, telecom, internet, healthcare and utilities are rated underweight. For Hong Kong sectors, industrials, consumer and banks are rated overweight, and an underweight rating on property and utilities.