Strong counters to continue outperforming this year

January 12, 2018 12:12
Momentum investing may continue to work well in Hong Kong this year, given that the market rally is still led by a small group of stocks. Photo: Bloomberg

I had recommended two momentum investing portfolios in the middle of last year based on changing market circumstances. Both portfolios have outperformed the market by wide margin, generating returns of 118.4 percent and 75.9 percent compared with 40.5 percent return of the Hong Kong Tracker Fund.

In fact, around 1,000 stocks out of a total of about 2,000 Hong Kong-listed counters suffered losses over last year. Only around 900 stocks generated positive returns in the period. Of this, less than 400 outperformed the Tracker Fund. That means less than 20 percent of all stocks have beaten the benchmark.

As such, momentum investing approach worked particularly well.

Momentum investing may continue to work well this year, given that the market rally is still led by a small group of counters, as reflected by market breadth gauges. For instance, only about 50 percent of counters are trading at a level above the 250-day moving average.

Overall, we expect Hong Kong equities to set new highs this year, and the market rally may continue to be centered on a limited number of strong plays.

The Hang Seng Index might hit a peak of 39,000 points, but volatility may also pick up.

Here's the latest update of shares our two momentum investing methods have identified.

EJFQ composite portfolio:

1. Future Holdings (01030.HK)
2. Genscript Biotech (01548.HK)
3. China Zhengtong Auto Services (01728.HK)
4. Geely Automobile (00175.HK)
5. SUNAC (01918.HK)
6. Country Garden (02007.HK)
7. Sunny Optical Technology (02382.HK)
8. China Evergrande (03333.HK)
9. Agile Group (03383.HK)
10. Landing International Development (00582.HK)

Richard Driehaus strong counters portfolio:
1. Sino Biopharmaceutical (0117.HK)
2. Geely Automobile (00175.HK)
3. Country Garden (02007.HK)
4. Ping An Insurance (02318.HK)
5. Sunny Optical Technology (02382.HK)
6. Agile Group (03383.HK)
7. China Molybdenum (03993.HK)
8. Landing International Development (00582.HK)
9. Tencent (00700.HK)
10. ZTE (00763.HK)

The full article appeared in the Hong Kong Economic Journal on Jan 10

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist