Hong Kong Value Stocks Q2 2024 May 14, 2024
After a long period of sluggishness, Hong Kong market has begun to pick up. The Hang Seng Index has broken through a key resistance level of about 17200, hinting at a potential shift in investor sentiment. This stellar performance could be fueled by a confluence of factors, from strategic investment decisions to improving economic forecasts.
We will explore the specific events that could lead to the market revival and briefly examine the role of supportive policies and the influx of foreign capital. Followed by the broader economic landscape shaping investors’ decisions. Beyond this understanding, many investors are eager to capitalise on potential opportunities as well; so we will also delve into specific stock picks within the Hong Kong market, with a focus on companies that might be well-positioned to benefit from this renewed optimism.
Since 2021, the HK stock market has been dwelling in a bear market, waning investor confidence and dragging the Hang Seng Index down. This coincided with a period of uncertainty in China, a key driver of the Hong Kong stock market. However, recent promises of support from Chinese market regulators have provided a surge of optimism, suggesting a potential turning point for the Hong Kong market. There is also a resurgence of foreign interest in China; since February 2024, there has been a steady increase in foreign funds flowing into the Chinese market through the Hong Kong stock connect.
With the US market appearing increasingly expensive compared to its global counterparts, many investment houses are strategically shifting their allocations, in search of value. This pivot prioritises undervalued markets, particularly those in Asia. Similarly, emerging Asian markets such as Vietnam and Thailand are attracting attention due to their long-term growth aspects and potential for higher returns.
Domestically, Hong Kong’s macroeconomic data are showing marginal improvements, and the domestic economy is expected to continue its moderate recovery. Internationally, there is growing anticipation of the Federal Reserve increasing interest rates in June. This potential move could create a more favourable environment for Hong Kong stocks as investors pull out of the US market in search of more undervalued markets.
At the time of writing as of 29 April 2024, the Hang Seng Index has turned positive in April 2024, up close to 4% YTD, breaking past an important resistance level of 17,200 points. The next level of resistance is around the level of 18,200.
Figure 1: Hang Seng Index, Source: TradingView, As of 2 May 2024
For investors new to the Hong Kong market, a value-oriented approach can be a good first step. Value stocks tend to be less volatile than growth stocks, which potentially minimises risk for those unfamiliar with the specific market dynamics.
Seasoned HK investors can also capitalize on this by riding the current positive market momentum.
To mitigate the risk of investing in companies that appear undervalued but may fail to deliver promised returns (known as value traps), we have identified specific stocks within various sectors of the Hong Kong market. These selections are based on criteria such as positive earnings, lower price-to-earnings (P/E) ratios, and higher dividend yields compared to their sector indices, offering potential for capital appreciation while maintaining a moderate risk profile.
Undervalued Companies within Sectors compared to Sector Index
The Upside Potential is derived from dividing the Bloomberg Median Target Price by the Last Traded Price as of 17 May 2024
Financials
Energy
Information Technology
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Communication Services
Utilities
In the coming weeks, we will provide sector breakdowns and specific company evaluations, to assist you in navigating this potential opportunity within the Hong Kong market.
If you would like to learn more about HK Value Stocks and the current CN/HK macroeconomic climate, you can join our upcoming webinar on 6 and 13 June 2024 here!
Additionally, we have an exciting opportunity to share with you! To celebrate the Hong Kong market’s potential resurgence, we are happy to announce that POEMS will be hosting a special lucky draw! Learn more about this special event from our page here! Don’t miss out on this opportunity to win while participating in the Hong Kong market’s potential upswing!
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About the author
Global Markets Desk (Asia Market)
The Global Markets Desk Asia Market Dealing team specializes in managing Asia Markets, covering key regions like Greater China, Malaysia, Japan, Thailand, and others. In addition to executing client orders, they also provide educational content through market journals and webinars, offering insights into macroeconomics, stock picks, and technical analyses for the Asia market landscape.
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