18 April 2019
Individual investors in Hong Kong need to turn their attention back to local blue chips. Photo: HKEJ
Individual investors in Hong Kong need to turn their attention back to local blue chips. Photo: HKEJ

Time for HK investors to show more love for local firms

Forget HSBC Holdings (00005.HK), Hong Kong and China Gas Co. (00003.HK), Hong Kong and Shanghai Hotels (00045.HK) and other Hong Kong blue chips. Almost all of the stocks have underperformed their mainland peers this year.

The performance gap could widen as there was a 59 billion net yuan capital inflow into the mainland during the first month of the Shanghai-Hong Kong Stock Connect program. 

No kidding, the northbound capital flight from Hong Kong to China totaled 67.8 billion yuan, or 7.7 times more than the southbound fund flow of 8.8 billion yuan, since the Stock Connect was launched on Nov. 17. That came as A shares recorded the best month with a 23.5 percent return, compared with a negative 6.2 percent return in the Hang Seng Index. 

Since the through-train took off, the Hong Kong stock market has seen a HK$1.2 trillion loss in market capitalization, and a tenth of the 1,538 listed companies in the main board have seen their shares hit a year-low.

Among those affected were the six Macau casino plays, which stole the limelight last year by outperforming. 

Meanwhile, mainland financials have woken up like lions after a prolonged slumber. Especially the brokerage sector, which saw many big players record over 50 percent jump in their values in the past month. 

To get an idea of the magnitude of the frenzy, one can take a look at Citic Securities Co. Ltd. (06030.HK)China’s No.1 brokerage house recorded 39 billion yuan turnover on the mainland yesterday, or about 21 times the turnover of its Hong Kong-traded H shares. 

And in case you are not aware, the money chasing H shares futures has surpassed the traditional HSI for the first time yesterday. 

What does all this tell us? The answer, unfortunately, is that the Hong Kong stock market has not exactly been a good place for local firms. 

If you see the Hang Seng Index go up, it is probably not because HSBC has some good news to announce. It is more likely because the Chinese Dama (housewives) are buying up A shares, which in turn ignites some interest for Hong Kong shares.

This China-Hong Kong integration, or as some may prefer to call it – pollution, in the stock market could make many local stocks obsolete.

This is not a good thing as many Hong Kong companies are more like Sun Hung Kai Properties Ltd. (00016.HK), which has a single property business, and not like Hutchison Whampoa Ltd. (00013.HK), a conglomerate whose business model and geographic reach are difficult to emulate. 

Currently there are 17 companies whose name begins with Hong Kong, compared with over 200 companies whose name begins with China. Generally speaking, stocks bearing the “China” name have run faster with higher turnover, while the Hong Kong names tend to be slower but safer.

Among them, Hong Kong Telecommunications Ltd. (00008.HK) and Hong Kong Television Network Ltd. (01137.HK) have been relatively good performers this year.

Now, it is time we become a little patriotic towards our city and put some money in the local stocks. The good thing is that they can give us some home advantage. Also, the more we become familiar with local firms, the better will be our chances of protecting ourselves in case something goes wrong.

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EJ Insight writer

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