At a time when the Chinese economy continues to lose steam, any bad news can unsettle the Hong Kong stock market easily.
As investors confront several uncertainties, the market is losing its glow.
With many Hang Seng index constituents still from the old industries, and penny stocks presenting huge pitfalls, many Generation Y investors have begun to look beyond the local market and turn their focus to the United States.
Andy is one such investor.
Born in 1985 and graduating from UC Berkeley with a degree in economics, Andy has been investing in equities for more than seven years now.
He has been very successful in his investments, reaping an average annual return of 23 percent.
Asked about his winning strategy, Andy told the Hong Kong Economic Journal Monthly that his recipe is to stay away from Hong Kong and Chinese shares.
“There are just too many Chinese stocks on the market and the trading is just speculative. I even avoid the so-called China concepts stocks in the US,” he says. “No one knows if their information and numbers are reliable.”
“The US market is mature and immune from politics. Even though there is a presidential election this year, there’s just no such thing like a certain company may benefit if Hilary Clinton or Donald Trump wins the race.”
Andy has poured almost a million Hong Kong dollars into US stocks.
“The Dow Jones has long bounced to new highs from the lows in 2009, but the Hang Seng index is still hovering around 20,000 points,” he said, laying it out as a vindication of his decision to focus on the US market.
While some people in Hong Kong prefer to chase seemingly stable local blue chips for dividend payouts, Andy argues that investors should instead look for firms with genuine, long-term growth prospects, like tech and green plays.
“And don’t take P/E ratios or asset size too seriously. These data are all about a firm’s past. What determines share price is people’s expectations,” says Andy, who wished to be identified only by his first name.
He points out, for example, that US electric car maker Tesla “is still nowhere near a breakeven point but that hasn’t held back its shares from surging since 2013, as investors are bullish about its future as a game changer.”
Another factor going in favor of the US is the strong regulatory scrutiny and investor protection there, Andy says.
Evidence of this is a class action lawsuit launched against Alibaba last year for the latter’s failure to disclose a row with the US authorities over fake goods, prior to the e-commerce giant’s landmark IPO in New York.
“You can sue the company, together with other investors, even if you only bought just one lot of shares,” Andy notes. “And many legal firms volunteer to help small investors, on a “no-win, no fee” basis.”
And, investors in the US can sell shares at any time if they smell something fishy, but that’s not always possible on the Hong Kong market, where a stock can be suspended from trade almost indefinitely, usually without any explanation, freezing out minority shareholders.
A low investment threshold is another factor that works in favor of the US.
“With HK$10,000, you can buy shares of several US firms but with the same amount you can’t buy even one lot of CK Hutchison or HSBC shares,” Andy says.
Fannie, another Hong Kong investor and a classmate of Andy, says she is particularly drawn to ETFs in the US.
She has poured in some HK$500,000, especially in SPDR S&P 500 trust, the largest of its kind that tracks the S&P 500 index. Service fees and charges of most ETFs in the US are aligned at a rate of 0.3 percent or even lower.
EJ Monthly also identified a 34-year-old person named Adia as another Hongkonger who has focused on US stocks.
Adia, who runs his own investment education agency and has a net worth of some HK$50 million including stocks worth HK$8 million, told the journal that he simply follows Warren Buffett.
The first US stock that Adia picked was ConocoPhillips, and then Wells Fargo, a Buffett favorite.
“Chinese firms mostly lack vision and are short term profit-driven. But US entrepreneurs have a mission,” Adia says.
Giving an example, Adia pointed out that “when Yahoo offered US$1.7 billion to buy Facebook, Mark Zuckerberg refused and promised to surpass Yahoo in market capitalization, and he did it.”
But Adia cautions his clients against a possible flat trajectory in the US market, as equities are becoming too expensive as measured by P/E.
“The market may soon peak out and I have shed my exposure.”
That said, new opportunities will arise going forward, Adia said, identifying shale gas plays among the promising prospects as the firms are expected to bounce back amid a recovery in crude prices.
This is an adaptation of several separate articles that appeared in the July issue of the Hong Kong Economic Journal Monthly.
Joyce Lee, Henry Sung and Yan Lee contributed to these stories.
Translation by Frank Chen
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