HK equities: How not to lose money in the squid investment game?

Ben Kwok December 01, 2021 10:14

Investing can be as cruel as the winner-takes-all Squid Game.

Think about the investors who bet on Hong Kong equities this year: They must be lamenting the underperformance as the benchmark Hang Seng Index recorded a 14 percent drop year to date while the S&P 500 index gained more than 20 percent.

Worse, Hong Kong stocks were among the worst performers in November with a 7.5 per cent loss.

Investment climate in 2022 can be anything but predictable. But these are the five investment themes, as suggested by Hong Kong Economic Journal Monthly, to consider when playing the game.

First is stagflation. Everyone feels that inflation is coming but they also know economic growth is not coming. Consumer price index in the United States jumped six per cent in October, that was an alarm.

The broken supply chain globally made it even worse. Heavy metals or Bitcoin might be a good hedge, it’s also a good idea to look for companies with pricing power and avoid those without.

Second is metaverse. Thanks to Facebook, we can imagine a world powered by virtual and augmented reality, free of virus.

The five big technology plays – FAANG – would be a good start, but we doubt how much ATMX would be benefitted under the tightening regime in China.

Third is space. All eyes are on the race between the top two wealthiest men in the planet, namely Amazon’s Jeff Bezos and Tesla’s Elon Musk. Hopes are high on SpaceX becoming another Tesla but perhaps one should bet on those orbital aerospace companies.
Fourth is decarbonization. If India and China’s pledge to be carbon neutral is not enough, the 450 global financial companies with US$1.3 trillion assets that supported clean air in the COP 26 should make it crystal clear-ESG is going mainstream.

Oil companies are to be avoided. Electric cars will rule the world. Think about the MSCI ACWI Low Carbon Target Index, which might yield better returns than Nasdaq one day. The new-born HSI Low Carbon Index is also worth paying attention to.

Finally, anti-rich. Did President Xi say common prosperity? He meant what he said, Look at how Beijing tightened regulations on numerous sectors. It is feared that such policy drive could exert considerable short-term pain but not necessarily bring long-term gain.

Same with the United States, where people increasing think the superrich should pay more taxes, as the richest 25 Americans paid a true tax rate of just 3.4 per cent.

Avoid those companies on the US or China government’s radar.

So what to look for? Companies who are operating in line with the national strategy, such as those working on automation, network security, innovative drugs and new energy.

Make them your friends and lots of investing luck to you in 2022!

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Ben Kwok

EJ Insight writer