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Equity strategy:

 

Hong Kong and China Equities

Aim to capture growing trends in the leading region of recovery

Strong fundamentals support Hong Kong and China equities

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Explore opportunities in the “more digital” trend

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Discover opportunities in deglobalisation

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Strong fundamentals support Hong Kong & China equities

    

The annual GDP growth estimate for China was revised down from 5.8% to 3%1. However, when compared to GDP globally, the number remains positive, given the region’s solid economic foundation. Looking ahead to 2021, the estimated GDP in China (+7.7%) is expected to outstrip that of developed markets.

 

China growth estimates remain relatively steady1

Dragon Growth_updated_071620

Explore opportunities in the “more digital” trend

 

Asian governments and corporates are already investing in digital technologies, especially China, with the roll out of 5G. We are positive on 5G-related sectors, including base stations, data centres, and upstream equipment.

E-commerce now accounts for 26% of China’s total retail sales2, with the gains being driven by activity in third-tier and lower-tier cities.

 

User breakdown of online payment apps in China, by tier of city3

Dragon Growth_updated_071620

The recent lockdown has also given rise to opportunities in areas related to online education, digital healthcare, and smart factories. 

 

Discover opportunities in deglobalisation

 

The post-pandemic world could see a move towards deglobalisation. We believe the beneficiaries will be companies that can leverage any increase in domestic consumption on the back of rising incomes, and firms capable of moving up the manufacturing value chain to run higher-margin businesses.

 

In terms of geopolitics, Sino-US trade tensions have started to encroach on financial markets. We expect more US-listed Chinese companies (Chinese ADRs), mainly in the “new economy” sectors, to seek a return-home listing, particularly on the Hong Kong Stock Exchange. This may suggest potential improvements in earnings growth and valuations4, which are positive for Hong Kong equity investors.

 

Sources:

1. Goldman Sachs Investment Research, 4 January 2020, 15 May 2020, for illustration purposes only. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here.

2. National Bureau of Statistics of China, Credit Suisse, as of May 2020.

3. QuestMobile, as of 30 September 2019.

4. Bloomberg, data as of 17 June 2020. Hang Seng index is currently trading at 10.6 times price-to-earnings ratio, with an estimate earning growth of -7% for the 2020 fiscal year.