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How to Take Advantage of the Recent Pullback in Hong Kong-Listed Chinese Stocks

Oct 10, 2018

  • Hong Kong-listed stocks have suffered in 2018 with the Hang Seng Index, which tracks large-cap companies listed on the Hong Kong Stock Exchange, generating YTD returns of –12.45% primarily due to effects of the trade war.  
  • The pullback in Hong Kong listed stocks has caused Chinese companies to trade at cheap valuations relative to historic levels -- On October 10th, 2017, the Hang Seng’s NTM P/E was 12.06x. Since then, the Hang Seng’s NTM P/E has fallen 17% to 10.00x as of October 10th, 2018. 
  • Despite the pullback in Hong Kong-listed stocks, some companies continue to trade at expensive valuations. Global Brands Group (787 HK), Hutchison Telecommunications (215 HK), and China High Speed Transportation Equipment (658 HK) are among the most expensive Hong Kong-listed stocks, all with high NTM P/Es despite negative returns on equity. 
  • Among the most attractively priced Hong Kong-listed stocks are PC Partner Group (1265 HK), China Oriental Group (581 HK), Sunny Optical Technology Group (2382 HK), Guangzhou R&F Properties (2777 HK), and United Company RUSAL (486 HK), all with strong returns on equity while maintaining low NTM P/Es.
  • Worth noting, China Oriental Group (581 HK) and United Company RUSAL (486 HK) are both metals and mining companies.  
  • Of the Hong Kong-listed stocks priced attractively, China Oriental Group (581 HK) is rated ‘Top Buy’ in our China All-Cap Global Top Picks. 

     Source: Capital IQ