China Fund Beating 99% of Peers Owns One Hong Kong Stock

(Bloomberg) --

The only Hong Kong-focused company worth owning is its stock exchange, says a top fund manager who first turned bearish on the city’s economy more than a year ago.

Mirae Asset Global Investments Hong Kong Ltd.’s Wei Wei Chua has in the past month added Hong Kong Exchanges & Clearing Ltd., the sole firm in his portfolio that generates most of its revenue in the city. The stock has rallied 14% since late May, at a time when tensions between Washington and Beijing have threatened to curtail Chinese companies’ access to U.S. capital markets, making such secondary listings closer to home more appealing.

Chua lowered his exposure to Hong Kong’s companies last year, before the local economy was ravaged by protests and the impact of the virus pandemic. At the time, he shifted his focus to stocks which benefit from China’s efforts to lift domestic consumption.

“I think Hong Kong as a financial market will be fine,” Chua said by phone from his office in the city. “But it will be a long road back for the local companies,” he added, citing the impact of protests and a decline in mainland tourist spending.

Chua’s China Growth Equity Fund has beaten 99% of peers this year with a nearly 15% return. In that same time, the Hang Seng Index is down 13% while the MSCI China Index has gained 1.5%. He oversees about $1.7 billion in assets -- $1.2 billion of that in greater China. They are divided between ADRs, Chinese firms listed in Hong Kong and those on the mainland.

Recent solid Hong Kong debuts for JD.com Inc. and NetEase Inc. show how such listings are helping to revive interest in Hong Kong’s market. The share sales are boosting inflows and helping strengthen the local dollar at a time when China’s plans for a national security law have raised concern about the city’s future as a financial hub.

HKEx shares were up 1.1% at 11:31 a.m. in Hong Kong. The firm, which generated about 85% of its revenue in Hong Kong last year, has seen a trading boom amid a flurry of recent listings, helping lift core profit. Chua expects more will come.

He has shifted some of his portfolio into Hong Kong secondary listings of mainland companies such as Alibaba Group Holding Ltd. and JD.com to “diversify and avoid some of the noise and rhetoric surrounding these companies in the U.S.”

On a global scale, Chua said he is concerned that the recent rally is more a function of excess liquidity than fundamentals. “It feels like a bull market, which is kind of disconcerting considering where the economy is at versus what the stock market is telling us. Recovery could be much slower than expected.”

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With assistance from Bloomberg