Unsurprisingly, it remains a challenge to find quality businesses with sound prospects among the many, many high-dividend yield and/or absurd-cheap Hong Kong stocks. The three highest ranked divi stocks at least look decent enough to have a closer look; Greentown Management Holdings, Topsports International Holdings, and Hang Lung Properties
That is exciting. However, it would also be important that these companies have not previously carried out (several) capital increases and are now simply paying out the money they have raised. (I have seen at least one such company in Hong Kong from mainland China, in the end the liquid assets in the balance sheet did not exist and it was a case of fraud. The name of the company was Real Nutriceutical Group Limited).
This is just a quick skim of the companies. Naturally, more work is required to make any type of investment decision.
Frauds are definitely prevalent among HK stocks. HK hardly has a monopoly on fraud though. I have seen tons of frauds and bankruptcies in the US too, just to name one other country.
I agree with that. However, I think that companies that do most of their business in mainland China are more susceptible to fraud. I don't think this applies to Hong Kong, where the risks are normal. In principle, dividends are of course a positive sign and a fraudulent company usually pays no or only low dividends (as there is no real money).
Since you’re looking at HK property you might as well pick ones with better balance sheets than Hang Lung. Sino land 83 HK, Miramar hotel 71 HK look kind of interesting (net cash).
Luk Fook is capital intensive in a good way since the inventory is mostly gold...which went up 30% last year....the inventory makes its own returns lol
It seems that the investment manager GMO is rather sceptical related to China. They write:
"Chinese stock valuations appear mildly attractive versus their history and are the cheapest major market today. However, the most meaningful influence on their poor returns has been deteriorating fundamentals and significant shareholder dilution, not falling valuations. Weakening return on capital and quality metrics, along with significant geopolitical and regulatory risks, make us cautious on China. We consider emerging markets outside of China to be a better risk/reward trade-off."
As part of a portfolio, however, Chinese stocks make sense in my opinion.
I don’t hold a few on the Chinese market as a whole myself. Geopolitical and regulatory risks are definitely something to keep in mind. Those western sanctions, in particular, can sting pretty bad. I have also seen plenty of negatives on Hong Kong listed stocks of Chinese companies. There are many that have been suffering revenue declines, operating losses, etc.
The key - as always - is to find the better opportunities. If I look at ‘my’ Hong Kong stocks, they have been increasingly generous with dividends and/or share buybacks, and predominately they have been growing.
I doubt that GMO would call the ones that are trading at a single digit P/E, mid-single-digit % or better dividend yield, and with the market cap substantially covered by net cash/securities/other financial investments, as anything worse than very cheap.
Other Emerging Markets certainly have their bargains too. Tough to find anything as absurdly-cheap as some of small/microcap HK stocks though. It’s good to see that Halyk Bank has been performing solidly…still at c4x P/E and mid-teens % divi yield.
You probably also need to distinguish between A shares and H shares. H-shares are cheaper than A-shares. For example, according to MSCI data, H-shares have a P/E ratio of only 7.6, a P/B ratio of 0.7 and a dividend yield of 5%. see here:
That is exciting. However, it would also be important that these companies have not previously carried out (several) capital increases and are now simply paying out the money they have raised. (I have seen at least one such company in Hong Kong from mainland China, in the end the liquid assets in the balance sheet did not exist and it was a case of fraud. The name of the company was Real Nutriceutical Group Limited).
Valid comments.
This is just a quick skim of the companies. Naturally, more work is required to make any type of investment decision.
Frauds are definitely prevalent among HK stocks. HK hardly has a monopoly on fraud though. I have seen tons of frauds and bankruptcies in the US too, just to name one other country.
I agree with that. However, I think that companies that do most of their business in mainland China are more susceptible to fraud. I don't think this applies to Hong Kong, where the risks are normal. In principle, dividends are of course a positive sign and a fraudulent company usually pays no or only low dividends (as there is no real money).
That’s exactly why my HK portfolio heavily skews towards companies that return cash to shareholders.
https://jaminvest.substack.com/p/dragons-and-snakes
Usually it takes a recession for many of the frauds to be exposed. Other countries will probably see a rise in frauds when that happens.
Since you’re looking at HK property you might as well pick ones with better balance sheets than Hang Lung. Sino land 83 HK, Miramar hotel 71 HK look kind of interesting (net cash).
Thanks for the suggestions.
Pioneer ...
https://jaminvest.substack.com/p/hk-30
...and Safety Godown
https://jaminvest.substack.com/p/news-and-insights-32
are also in that bucket
Luk Fook is capital intensive in a good way since the inventory is mostly gold...which went up 30% last year....the inventory makes its own returns lol
Thanks for pointing that out
The property management firm First Service Holdings (2107) offers an attractive dividend yield of approximately 11%.
Financials are clean. Ibkr doesn’t allow retail to buy it currently.
Yep, that’s an interesting one.
IBKR does still restrict Buy orders for residents from US, Canada and EU though, as far as I can see.
It seems that the investment manager GMO is rather sceptical related to China. They write:
"Chinese stock valuations appear mildly attractive versus their history and are the cheapest major market today. However, the most meaningful influence on their poor returns has been deteriorating fundamentals and significant shareholder dilution, not falling valuations. Weakening return on capital and quality metrics, along with significant geopolitical and regulatory risks, make us cautious on China. We consider emerging markets outside of China to be a better risk/reward trade-off."
As part of a portfolio, however, Chinese stocks make sense in my opinion.
https://www.gmo.com/europe/research-library/bargain-value-trap-or-something-in-between_gmoquarterlyletter/
I don’t hold a few on the Chinese market as a whole myself. Geopolitical and regulatory risks are definitely something to keep in mind. Those western sanctions, in particular, can sting pretty bad. I have also seen plenty of negatives on Hong Kong listed stocks of Chinese companies. There are many that have been suffering revenue declines, operating losses, etc.
The key - as always - is to find the better opportunities. If I look at ‘my’ Hong Kong stocks, they have been increasingly generous with dividends and/or share buybacks, and predominately they have been growing.
I doubt that GMO would call the ones that are trading at a single digit P/E, mid-single-digit % or better dividend yield, and with the market cap substantially covered by net cash/securities/other financial investments, as anything worse than very cheap.
Other Emerging Markets certainly have their bargains too. Tough to find anything as absurdly-cheap as some of small/microcap HK stocks though. It’s good to see that Halyk Bank has been performing solidly…still at c4x P/E and mid-teens % divi yield.
You probably also need to distinguish between A shares and H shares. H-shares are cheaper than A-shares. For example, according to MSCI data, H-shares have a P/E ratio of only 7.6, a P/B ratio of 0.7 and a dividend yield of 5%. see here:
https://www.msci.com/documents/10199/255599/msci-china-h-index-net.pdf