Today the Hang Seng Index jumped to 30,135 points as traders and funds begin to rush into the index. Will the HSI surpass its previous January 2018 high of 33,223?
The Hong Kong region is filled with excitement. In the last week, we have seen a ramping up of trading volumes in the Hang Seng Index (HSI), continued protests and struggles with mainland China, Jack Ma's Alibaba stock jumping after he resurfaced, Tencent joining Geely to work on driverless technology, and Bank of China's efforts to slow the Ant-Tencent duopoly. FlowBank's rendering of the HSI in some graphs and charts will give you visual bullet points of the HSI.
The HSI is composed of 52 firms; we picked the top five companies by their weight in the index to review later. Its annual dividend yield is 2.90%, its PE ratio is 13.96x and its volatility is 23.13%. A large portion of the flow of funds is coming from mainland China into the HSI, because Beijing believes Hong Kong could be the next New York. The speed and scale of the recent influx is said to be unseen since 1985, and today Chinese investors see Hong Kong stocks as bargain alternatives to their mainland Chinese equivalents which is why funds have brought $26.5 billion into Hong Kong’s market this year. This could artificially bolster the index but open up an investment opportunity for short term profit seekers.
Broad Index Overview
In aggregate, the summed-up figures of percentage change in prices yields 27.26% which represents a decent return from one day to the next.
The HSI is not the most diversified index as it is clearly dominated by the Financials, and Information Technology sectors who hold exactly two thirds of the holding’s weight together. Out of 52 companies, 11 are Financials, and four are IT which means 28.85% of the firms carry 66% of the index’s weight. AIA, the index’s largest holding carries one quarter of the financials’ weight and Tencent, the second largest, carries one fifth of the IT sector.
Here is our rendering of trading volumes with two axes; on the left you see trading volume in thousands, and index points on the right (the HSI has surpassed the 30,000 mark today, but this fact does not figure in the graph).
Top 5 by Market Cap Stock Review
AIA Group is an investment holding company specialized in life insurance. In the first half of 2020, AIA saw revenues slightly decrease by -2.858% at HK$162 billion, but it has however improved from the first half of 2019. Net income fell -21.76% from the previous six months but remained positive at $17 billion. Earning per share also fell from $2.52 same period last year to $1.41. AIA is seeing a free cash flow growth of over 50% from the previous six months, with a trend upwards since the end of 2018. Current stock price is HK$103.80 and has seen a YTD change of 9.3%. Its price is close to its 52-week high of HK$109.30. AIA’s PE ratio is showing 24.10x earnings while its price to book ratio is at 2.20x. Its dividends yield is 1.24%.
Tencent is a large conglomerate firm with subsidiaries in internet services, entertainment, AI, and financial services. Its stock price is at HK$682.50 as of this writing and its 52-week high is at HK$700. Price to earning multiplier is 62.53x while price to book is 7.41x. Revenues in the first three quarters of 2020 were HK$386.49B with last quarter seeing an 11.86% sales growth. While expenses (COGS) grew 16.98% net income was high in the last quarter at $43 billion, a 19.26% growth from the previous quarter. Basic EPS in the previous quarter saw an increase of 19% to reach $4.55. Free cash flows stood at HK$143 billion, a 30% growth from its previous quarter. Tencent has over 60,000 employees.
HSBC is a large financial group and is listed in London, New York, and Hong Kong. Its price in Hong Kong is HK$44.35 with 52 weeks high of HK$59.90 and a market cap of HK$917 billion. Current P/E is 19.2x, with a PEG of 0.57 (on a 5-year expected) and price to book at 0.58x. In the previous two quarters of 2020, revenues fell by 11% but net income has come back six-fold. EPS is $0.2961 with no quarter dividends since last year. HSBC has been in the news lately because it froze the account of one of its big profile clients Mr. Hui, a pro-democracy protest leader and now political refugee in the UK. HSBC however had little options in these regards in the face of regulation, so they stated.
Meituan is an e-commerce platform that connects consumers and businesses to provide services that satisfy daily eating needs. They own an instant food ordering delivery brand and the company is engaged in the operation of the bike-sharing brand, Mobike. They have over 57,000 employees and have shown remarkable revenue growth since blowing up in 2015. Net income has been positive and growing, while expenses (COGS and more) have decreased. Net income was negative since 2015 and saw a positive figure in the year 2019. It has seen explosive stock price growth to HK$375.20 with a performance of +254.63% in one year alone. PE ratio of 884.91x earnings (which is very high), and an EPS of $1.41 and a price to book of 18x.
China Construction Bank is one of the big four banks in China. CCB’s current stock price is HK$6.21 and saw improvements in EPS last quarter at $0.31 compared to $0.29 expectations. Revenues in the past three quarters have been slowly improving with last quarter showcasing expenses decreasing as net income grew beyond its past levels, and dividends yielded 5.62% in 2020, an improvement year over year. CCB employs over 342,000 people. PE ratio is currently below industry average at 5.36x, and so is price to book at 0.58x. Its profit margins and operating margins have been between 30 and 40% and unfortunately lower than their 5-year average. Basic earning per share is $1.26, somewhat lower than industry averages.
Data gathered in the Daily Reports section of this link;
Stock graphs are from HKEX.com