Hong Kong Has Moderate Momentum and Weak Profitability
Watch the video with Andrew Stotz or read a summary of the country profile on Hong Kong.
Four Pillars of GDP: Driven by private consumption
Overall the GDP growth in Hong Kong is slow. It’s primarily driven by Private consumption while Investments is contributing least. Investments contribution as of 3Q16 was slightly positive, 0.05 vs -1.89 in contribution as of 2Q16.
Lowest ROE in Asia
Earnings have yet to recover from the fall of 12.7% in 2015. Hong Kong has the lowest ROE in Asia but offers the second highest 17CE* dividend yield in Asia.
A. Stotz Four Elements: Hong Kong’s rank relative to Asia
Overall Hong Kong is least attractive in Asia considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.
Fundamentals: Hong Kong has the lowest ROE in Asia, hence weak profitability.
Valuation: The market is moderately cheap due to low PB, trades at 17CE* 1.1x PB.
Momentum: Earnings in Hong Kong fell about inline with Asia and the momentum in the market is moderately attractive.
Risk: The Hong Kong market has relatively high beta to Asia ex Japan and gearing is at about Asia ex Japan average.
Strong performance in Materials and Consumer Discretionary
Top 3 largest sectors: Real Estate 16% of the market, Financials 16%, Info. Tech. 13%. China H-shares account for 13% of the total market capitalization.
Best sector & stock: Materials +8.3%, Future World Financial Holdings Ltd +93.8%.
Worst sector & stock: Telecom -9.0%, SmarTone Telecommunications Holdings Ltd -17.3%.
*CE is consensus estimates
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