How to buy Hong Kong stocks in 2024? Find the local dividend havens
- With foreign investors pulling out and the Hang Seng Index at a four-year slump, overlooked local firms delivering historically high dividend yields offer great value
Over the same four years, for example, the Nasdaq composite index has increased by 61 per cent and the S&P 500 by 45 per cent. For those who had invested in the Hang Seng Index, however, HK$1,000 put in the beginning of 2020 would be worth about HK$580 (US$74) today. Ouch.
So where do opportunities exist in Hong Kong? The answer: hidden value lies in many overlooked Hong Kong-listed local companies, seemingly trading in their own vacuum.
But while these investors have shown a steady interest in Hong Kong, their main stock selections remain primarily mainland Chinese companies. The reality is that Hong Kong’s local companies still feel too unknown and “foreign” to them.
The Hong Kong stock exchange is home to some 2,600 public companies, with about 300 being Hong Kong local companies. Among these, around 190 pay dividends and, of this 190, around 70 generate sustainable free cash flow, have reputable business operations, high quality management and, most importantly, have a long-term track record of paying out dividends.
The stark reality is few investors are looking at these companies. This may be an opportunity missed as they are delivering historically high dividend yields, and at the same time, trading at historical low valuations when considering accepted metrics such as price-to-book, price-to-sales and price-to-earnings ratios.
Many of these companies have fallen to the equivalent of their investment ocean floor. And since September, many of them have been outperforming the market.
For reference, the Hang Seng Utilities Index, which can be considered a gauge of high-dividend local companies, had returned 8.2 per cent up from October last year to January 5 this year, while the Hang Seng Index dropped 7.2 per cent during the same period.
Hong Kong’s stock market is among the 10 largest in the world. In terms of dividends paid to investors, it has ranked among the top five over the last several years. With an uncertain outlook for 2024 at best, I believe local Hong Kong companies offer a valuable dividend haven. If interest rates begin to drop later in the year, these dividends may become even more attractive.
To tweak a phrase from billionaire investor Warren Buffett, buy Hong Kong in 2024. I am.
Ronald Chan is the founder and chief investment officer of Chartwell Capital Limited, a Hong Kong-based asset management company