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Hong Kong-listed old economy stocks are coronavirus roadkill. Will they come back to life?

  • Airlines, retail, cinemas are among sectors beaten down by the virus
  • Is there pent-up demand for the old world ready to explode? Or are virus-driven changes in consumer habits permanent?

Reading Time:6 minutes
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Cinemas have begun reopening in China, but with mask-wearing and social-distancing restrictions that are a reminder that movie-going is anything but back to normal. Here, a worker disinfects seats at a Beijing cinema on July 21, 2020. Photo: Xinhua
Deb Price

As the coronavirus drags into its seventh month, old economy stocks face a high-stakes reckoning: do their battered share prices signal they are roadkill, unlikely to ever fully revive? Or, will these stocks rebound, becoming the miracle comeback stories of tomorrow?

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The answer is hotly debated among professionals looking ahead to where they expect share prices of these Hong Kong-listed stocks to be a year from now.

“The virus is the great known ‘unknown’ for the markets,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. “The unknown features of Covid-19 – such as its incubation period and contagious channels – bring more uncertainty,” making it difficult to predict which beaten-down stock sectors can roar back, he added.

With the arrival of the pandemic, people began spending endless hours cooped up in tiny flats and falling deeper in love with their smartphones. Everyday life became more digital than ever as countless people shifted to working, shopping and playing at home, while fearing public places as contagion hotbeds. As a result, stock prices of Hong Kong-listed telemedicine leaders such as Ping An Good Doctor soared, as did those of online gaming giant Tencent and e-commerce titan Alibaba, the owner of the South China Morning Post.
Meanwhile, the Covid-19 virus steamrollered much of the pre-virus world’s economy, flattening traditional sector stocks – Macau casinos, Hong Kong property developers and retailers (already injured by months-long city protests), cinemas, and airlines. Many of these stocks haven’t yet rebounded, even as China continues to show it largely has the virus under control and its economy is bouncing back.

By some long-established yardsticks – such as share price to earnings – many virus roadkill stocks look cheap, at least theoretically making them good buys. Yet detractors urge investors to instead look at the sentiment that has already picked winners from the virus era. They argue that the sentiment strongly supports the notion that important changes in consumer habits will be quite long lasting, perhaps even permanent.

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