I thought I would do something a bit different and include a blog post on HK stocks today as I have noticed a fair bit of the blog traffic from HK and China. Maybe they can tell me how badly I am interpreting markets around there with this blog post!
HONG KONG STOCKS WILL NOT RECOVER IN 2024!
“If every instinct you have is wrong, then the opposite would have to be right.” – George Costanza
This blog post might appear a bit tongue in cheek, and there is a bit of truth in that. Don’t expect high level analysis within it, more a timestamp to satisfy my own curiosities in markets.
WHAT CAN GEORGE COSTANZA TEACH US ABOUT CONTRARIAN INVESTING?
Having said that I am not being entirely flippant here. Whilst I wouldn’t make it a “concentrated bet” for one’s personal wealth, I don’t think it is silly at all to add a small somewhat speculative part of a portfolio to HK stocks.
I just wanted to explore some interesting data and observations, rather than make it too analytical.
As I shall note further down, around this time of year the last couple of years, there has been some markets that every natural instinct probably would have told you to avoid.
In hindsight, doing the complete opposite would have been right and quite profitable!
WHY ARE HONG KONG STOCKS FALLING?
There is a laundry list of problems with this region and market if you like! That is what you have to expect in a contrarian / George Costanza like trade. Such problems have been so well documented by the media, so I won’t spend this post re-hashing them.
Maybe that is the key point in some regard. When the problems are so widely reported by the media, perhaps everyone who possibly would entertain the idea of selling, has almost finished doing so?
HK stocks have already tested investors’ patience recently, that is for sure!
How many major stock markets, or a particular asset class, chalk up four calendar years in a row of negative returns? Of course, 2023 has not finished yet, but that looks possible here.
MARC FABER LATEST INTERVIEW – HONG KONG STOCKS ARE CHEAP
Let’s firstly look at some data from another market veteran in Mark Mobius. This article from Mark Mobius is not a recent one but may have some interesting lessons to take note of. Amidst the covid crash of 2020 it was taking a step back and asking oneself how much do stock markets typically fall by and for how long.
Seemed like the point of the Mark Mobius article here, was to perhaps illustrate during such market declines things often look hopeless. It is tempting to throw in the towel and say it’s different this time. The market really will not recover this time due to …………. Etc etc. Lots of investors were also claiming this in the middle of the covid crash which is around then this article appeared.
Overall, the average seems to be about 50% drops over a time of 18 months or so. The specific HK stats also show something similar.
At the time of writing if I use a high point of early 2018, HK stocks have almost halved. A drop of circa 47%, but interestingly that is almost a period of 6 years!
Another Marc, Marc Faber is someone who it might be interesting to consider their thoughts right now. After all, he did live in HK from 1973 to 2000 and still has an office there. He regularly comments recently that he has never seen the mood so gloomy about HK in all his life there, and he is in a good spot to make such judgments.
He has been called Dr Doom, and a permabear my some. Surely then, someone with those labels would be bearish on HK stocks right now?
Refer to the below YouTube interview from the 30-minute mark and his comments over the next minute or two.
We Are Already In A Recession Despite Strong Liquidity with Marc Faber – YouTube
He makes it clear that regions that can appear absolutely horrible at times can be attractive investments.
Around this time in 2021 he felt the Turkish market may have large upside. Then around the same time in 2022 he spoke similarly about Iraq. Both markets were absolutely hated at that time and went on to roughly double in a year in USD terms! In this part of the interview, he then gives HK stocks and property stocks a similar bullish mention heading into 2024.
By the way the whole interview above is worth a watch. The interviewer is a relatively younger Australian, and I thought does a lot better interviewing Marc than the others I see.
ARE HONG KONG STOCKS CHEAP?
This story below is a couple of months old, but the HK market is still trading around similar levels.
Buybacks Surge in One of World’s Worst-Performing Stock Markets – BNN (bnnbloomberg.ca)
Perhaps it is a sign although international investors are shunning HK amidst the western media highlighting all the problems, insiders are seeing obvious value? The story ends mentioning the HK market trading at a forward P/E of 8 times.
Another rough measurement of whether international investors might be overly pessimistic on HK stocks is how large the premium of A to H shares is. It is still currently quite large and indicates poor sentiment towards HK stocks.
Late last year there was a lot of publicity about the fact HK stocks traded below book value for the entire market. Stories also mentioning in particular that China shares trading in HK were at the “cheapest ever”. Whilst there was an attempt to rally from October last year through to February this year, things are back to similarly depressed levels once again.
WHAT IS THE MIGRATION RATE IN HONG KONG?
I know it seems popular to highlight all the issues about China right now. For those that concede they have a ton of problems, and their motives are a worry, one must still be open minded that they would still want HK to be relatively strong. It is crucial whatever China’s goals are, that they still maintain some sort of economic resilience and HK is a key part to this.
Whilst all the attention is on the exodus of the typical western expat from HK, it is worth keeping an eye out on stories such as this. Chinese arrivals replace Hong Kong exodus. For them, the city is still freer than the mainland – ABC News (go.com)
IS SELL IN MAY A GOOD STRATEGY FOR HONG KONG STOCKS?
I mentioned at the beginning today’s HK blog post from me might seem a bit tongue in cheek, as the negative news flow would imply it’s almost impossible to be bullish!
In that spirit I thought I would include some seasonal stats, which also may not form part of your typical serious analysis, but I thought nonetheless were interesting.
Perhaps I should have done this before November, is this month HK stocks have started ok.
Like widely discussed in the US sometimes, HK stocks also exhibit seasonal strength from November up until May.
Well, they used to anyway! This was a study done in 2017 but spanned nearly 50 years of data.
Here is some seasonal data from another source, in https://charts.equityclock.com/hang-seng-index-seasonal-chart, this time referring to the past 20 years December 2022.
Finally, just to convince you I am being a tad serious with this George Costanza investing strategy, I do disclose I have some small stock positions in the below stocks that might be relevant to this blog post.
Note that I am not the author of the below seeking alpha articles, but they could be of interest to some. Mostly likely paywalled but some might have access to certain number of articles to read. Some of the articles are old and stock prices have fallen considerably since!
I am mostly providing the links for my own curiosity and to revisit where these three stocks finish up trading in late 2024.
IS CK HUTCHISON A BUY RIGHT NOW?
(note HK listed but most of earnings are outside of HK and mainland China)
should-you-buy-ck-hutchison-holding-thirty-cents-on-dollar?
0001 $40.30 (▼1.83%) CK Hutchison Holdings Ltd | Google Finance
IS HONG KONG LAND A BUY RIGHT NOW?
(note Singapore Listing)
H78 $3.35 (0.00%) Hongkong Land Holdings Limited | Google Finance
Hongkong Land Is Still Our Asian SWAN
IS NAGACORP A BUY RIGHT NOW?
(note HK listing but is a casino business in Cambodia, yet would be helped by a pickup in visitors from the China region)
3918 $3.82 (▼2.55%) Nagacorp Ltd. | Google Finance
nagacorp-a-casino-monopoly-now-attractively-priced
Not financial advice of course, and the above are positions that won’t hurt me too much if it all goes pear shaped!
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