Venturing Into HKG / CHN Market - My Experience

My experience with HKG/CHN market just started a few months back and I am considered as “newbie” as far as investing in HKEX is concerned. As we know, the HKG market is much bigger than Singapore as HKEX is the 3^rd largest stock market in Asia in terms of market capitalisation. HKEX has more than 2000+ stocks listed there as compared to SGX which have around 700+ stocks. With so many stocks listed in HKEX, I am sure one will be able to select more fundamentally strong stocks from the pool, especially if you are an income investor looking for dividend stocks with a clean balance sheet.

Of course, Hong Kong was in the limelight recently for a wrong reason not because of it being the freest economy and world-leading financial centres, with low taxation, free-port trade and free capital in & outflow. As a financial blogger, I shall not touch on political issues that causing the current social turmoil and riots which has been the headlines for world international media and news. The protest and riots may continue to wreck HKG for quite some time even with their recent peaceful local district council elections.

image credit to businesstime.com

Till date, I have invested almost 15% of my capital into HKG/CHN market in a total of 30 stocks.

Yes, you are not wrong, 30 not 5 or 10 counters. But why so many counters?

First of all, HKG is still a new market and territories for me and as you know, I am a very “kia-si “  person that afraid of picking wrong stocks with huge allocation. As an investor who is not really good in stock analysis and picking multi-bagger stocks like Amazon/ Apple / Facebook or Google, the only reason for me is to diversify and “play safe”.

image credit to alliancebernstein.com

Not like DBS/ OCBC/Keppel Corp / Capital Land etc which we are quite familiar with and have the confidence to allocate more than 5-10% of our capital into of these stocks, for HKG, I still prefer to allocate lesser on each and try to monitor from thereon. Although such “ net casting ” strategy may not produce the superb result even if you are lucky enough to have 1 or 2 baggers stocks. But at the same time, if any 1 or 2 stocks go bust, the impact will also not be that huge as well.

By using such a strategy, we will be able to catch a mixture of big fish and small fish, if you are lucky enough, you may get more big fish than small fish, the most important is to have lesser “dead fish “.

“There’s a famous fisherman saying: This is called fishing, not catching! Sometimes you go out and despite all of your preparation, all of your knowledge, you still don’t catch anything. That’s fine with me because it is not for the catching of the fish that I go fishing. It’s the whole experience of being out on the boat, being on the Gulf that I love.”

Investing is a long journey and is the process of having a “practical and achievable “ goal, seeing the companies you have invested growth day by day, re-investing your dividend and let the compounding effect take place.

Furthermore, you will not always win in the stock market, sometimes you catch nothing and lose like I lost money in M1 / StarHub and a few small-cap companies ( Design Studio / Sarine Tech/Duty-Free Int & TTJ Holding).

## If we diversify to 9 stocks instead of 3, it would allow us to make more "mistakes" and as mentioned earlier, I am not good in analysing financial figures and picking good stocks. As dividend and income investor, I often fall prey into value trap by picking wrong stocks e.g “Design Studio / Sarine Tech / Duty-Free Int / HPH etc “.  Hence, I will need a larger margin of safety to protect my capital.

HKG is a much more volatile market and with so many listed companies, it tends to have “lemon “ and “ rotten” company same as our S-Chips , one would have to be very careful in selecting a fundamentally good company to invest if you are going to have a “concentrate” instead of diversifying the portfolio. Is quite normal to see my stocks with daily fluctuation of more than +/- 3% without any valid reasons. One will really need to have a strong “heart” to stomach the risk and looking at the price swings.

Below is just an example of how “wild” the price swings could be ….  A drop of -98% in a day !!

MSCI snub erases Hong Kong stock's mysterious 3,800% rally in minutes <Source: Straitstiems.com>

It is not a shame to admit our “inability” to identify multi-baggers but it might be too risky to just depending on few stocks in such volatile market, unless you are an astute investor with acute and in-depth knowledge about the industries and market, I would suggest you have a more diversified portfolio to mitigate the "unsystematic risk".

“Super Investor” Warren Buffett famously stated that “ diversification is a protection against ignorance.” I would have to 101% agree on that statement, that in actual fact, I am ignorance about HKG/CHN market, hence I choose to have some kind of “protection” against downsides as well as limiting the upsides.

Cheers!

STE

Disclaimer:

“All stocks mentioned in this blog is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell. Please do your own due diligence before acting on any information given at your own risk.”

"Appendix"

Yield on cost : 7.4%

Estimated Dividend : $31.4 K p.a

Portfolio Return : YTD ( +1.07% )

Dividend Collected / Announced : $6,080

Total Return ( including dividend) : ( +2.51% )

Although the Hong Kong economy been affected by recent political turmoil and protest, but we have seen the HSI actually holding quite well with the index just slightly below the mean level. The main reason could be many of the 50 companies that comprise the benchmark HSI (like HSBC/AIA / Tencent /CNOOC/ Geely Auto /Ping An/Mengniu etc) derive most of their revenues and profit from countries outside Hong Kong.

Stocks with more exposure or derive their revenue mostly from Hong Kong only have (will ) seen (see ) their profit drops significantly, especially the industry like retail and tourism.

Hong Kong market also boosted by recent multi-billion IPO of Budweiser Brew Co. APAC ( raised about $5 Bil ) in September and of course the world largest IPO in 2019 of close to $11.2 Bil from Alibaba’s secondary listing in HKEX.

Alibaba’s Hong Kong Debut Is the Biggest IPO of 2019 <Source:Fortune.com>

Due to prolonged trade war since 2018, as below report highlighted, there are no winners in this US-initiated trade war, both end ( elephants ) also suffered from economy downtrend and productivity lost due to protectionisms.

US-China trade war is pushing the world economy closer to the edge. The longer it goes on, the harder it will be to undo the damage <Source:SCMP.com>

Macroeconomic impacts: No winners in this trade war

There are no real winners in this US-initiated trade war. Countries facing new tariffs, including the United States, experience declines in real exports and GDP. Other countries are hit indirectly through weaker demand for their own exports, either through supply chains or in response to weaker global economic growth. These effects outweigh any potential gains from trade diversion to avoid tariffs. In the protectionism scenario, the level of global real GDP is reduced by 0.1% this year, 0.8% in 2019, and 1.4% in 2020.

China's quarterly economic growth sinks to 26-year low amid US trade war <Source:Theguardian.com>

“The world’s second-largest economy grew by 6% in the three months ending in September, compared with the same period last year. That was down from 6.2% in the preceding quarter, and was the weakest rate since China began reporting quarterly data in 1993.”

China may not be able to maintain it’s 6% GDP growth in 2020 and will need the continues economic reform to boost domestic consumption. But I do believe that every war will end and recover eventually, without exception including this trade war.