Hong Kong Has Strong Momentum But Overall Unattractive

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Four Pillars of GDP: Driven by private consumption and investments

Hong Kong’s GDP grows at a moderate pace. Private consumption and investments have been the main contributors to GDP growth, while net exports have been a drag.

Slow earnings growth expected in Hong Kong

Earnings saw a slight recovery in 2016, but analysts’ estimates for 2017-2018CE* EPS growth are below the Asian average. Return on equity (ROE) is the lowest among Asian markets.

A. Stotz Four Elements: Hong Kong’s rank relative to Asia

Overall, Hong Kong is the second least attractive in Asia considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.

Fundamentals: Hong Kong has the lowest ROE in Asia, hence weak profitability.

Valuation: Low price-to-book value and moderate dividend yield.

Momentum: Hong Kong has good price momentum and had moderate earnings growth in the past 12 months.

Risk: The market’s price volatility compared to other Asian markets is relatively high.

Materials, Real Estate, and Info Tech up 20%+ in 3Q17

Top 3 largest sectors: Real Estate: 18% of the market; Financials: 17%; Information Technology: 16%.

Best sector & stock: Materials: +28.9% & Hengxing Gold Holding Co Ltd: +165.4%.

Worst sector & stock: Telecom: -0.8% & China Communications Services Corp Ltd: -10.2%.