Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008

Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008

Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008

Hong Kong’s stock market ended the year on a miserable note, with some US$520 billion of value obliterated. To Singapore-based hedge fund manager Chua Soon Hock, this provides a “once-in-a-lifetime” opportunity to pick up the pieces.
The market kicked off the year with a bang, with investors lapping up so-called “China reopening” stocks, soon after Beijing ended its zero-Covid policy. That also marked the highest point of the year for local equities, as the rally quickly faded along with optimism about China’s recovery momentum and appetite for risk as borrowing costs surged.
The Hang Seng Index jumped 10.4 per cent in the first month of the year, sending the gauge to a high of 22,688.90 on January 27, the highest closing point in 2023. The gauge’s worst month arrived soon enough in the form of a 9.4 per cent sell-off in February. The swings in the index ranked among the wildest, up there with gyrations seen in recent financial crises.
The 19.8 point win-loss swing followed a rocky year of trading in 2022 amid Covid-19 pandemic curbs, when the best gain was 26.6 per cent and the worst 14.7 per cent. The index swings are comparable to the volatile two-year periods during the 2008-09 global financial meltdown and the 1997-98 Asian financial crisis.

China’s weaker-than-expected economic recovery, underwhelming policy response and higher US interest rates have been the bane of investors’ lives of late. Persistent property sector woes and lingering concerns about tech sector regulations and crackdowns added further pressure. Things are changing for the better.

Chua Soon Hock, founder and CIO of Asia Genesis Asset Management in Singapore. Photo: Handout

“All the worst news is priced into the market. The media and [market] players are entrenched in great dislike and linear extrapolation,” said Chua, founder and chief investment officer at Asia Genesis Asset Management. “Chinese policymakers are taking more economic measures to address the bear market and loss of confidence.”

“For long term investors looking for big upside in future, high quality Chinese stocks are a no-brainer. This is an unprecedented once-in-a-lifetime opportunity to invest in Hong Kong and mainland stock markets.”

Chinese stocks are unlikely to fall much further from current levels, as the market valuation has slipped below its five-year average, Yan Wang, chief China strategist at Alpine Macro, said in a podcast. A stronger rebound, however, may be elusive without a fresh policy tonic from Beijing, he said.

“There’s no clear catalyst that can trigger a more positive re-rating, unless Beijing really fundamentally changes its policy direction,” he added.

Not many houses got 2023 forecasts right. Wall Street bulls, including JPMorgan Chase, Citigroup, Bank of America and Morgan Stanley, trumpeted a strong year for Chinese stocks at the start of the year. Goldman Sachs, among the most bullish, called for a 15 per cent upside by banking on a market re-rating.

This year’s three best winners are electric-car maker Li Auto, laptop maker Lenovo and state-controlled oil firm PetroChina, registering 91, 70, and 44 per cent jumps respectively. Combined, the trio gained an additional market value of US$74.9 billion.

Li Auto’s car assembly line in Changzhou in eastern Jiangsu province. The EV maker joined the Hang Seng Index family on December 4. Photo: Xinhua

Li Ning, Country Garden Services and car dealership Zhongsheng Group lost a combined US$28 billion of market value as they closed out the year at the bottom of the pile among the Hang Seng Index’s 82 members.

The record four-year slump in Hong Kong, however, has made the potential payoff appealing for Chua, a former investment manager at the Monetary Authority of Singapore. His flagship Macro Fund has gained every year since its inception in May 2020, according to data on its website.

“China and Hong Kong stocks are about the cheapest relative to emerging markets,” he said. “Earnings are improving steadily for many Chinese firms, despite the very negative Western narrative. Top Chinese companies are moving into higher profit margins businesses.

“Risk reward is the best I have seen in 40 years of investing and trading. The best thing is it offers great scale and choices.”

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