Are old economy stocks making a comeback in 2018?

The coal and cement industries are faring better following decapacity processes.

Amidst a bourse reform plan that seeks to attract new economy or tech listings into the stock exchange, one analyst is placing her bets that the much-maligned large-cap old economy stocks may be making their long overdue comeback in 2018.

“We are entering the second year of robust and sustainable earnings, which suggests these companies are being better run and the government’s policies to reduce excess capacity are having an impact,” said Fidelity International Portfolio Manager Jing Ning in a press release.

The forecast may be argued to defy the general industry direction as the Hong Kong Exchanges and Clearing (HKEx) unveiled a listing rule reform in December which allows new economy companies with dual-class shares to list in Hong Kong so as to avoid missing out on big value IPOs by tech giants like Alibaba. 

However, Ning points out that several old-economy industries like coal, steel and cement are gradually displaying improved business dynamics of their various product offerings following decapacity processes. 

“These industries are also amongst the biggest culprits for non-performing loans on bank’s balance sheets, so their improvement alongside stricter loan requirements are helping to improve non-performing loan formation,” Ning added. 

As these old-economy stocks gradually improve their respective market positions amidst strong earnings growth, a re-rating may loom in the near future.