Hang Seng Index
Low Valuation and Evolving Macroeconomic Landscape
The Hang Seng Index (HSI) tracks the performance of the 50 largest companies on the Hong Kong exchange. Renowned for its representation of Asian markets, the HSI encompasses diverse sectors like consumer discretionary, finance, and technology. Some of its largest stock constituents are well-known companies such as Tencent Holdings, Industrial & Commercial Bank of China, PetroChina, and Alibaba Group Holding.
Despite China’s promising growth prospects, concerns over the country’s economic macroenvironment have led to a near 37% decline in the index. Challenges in China’s equity landscape, including legal uncertainties, limited transparency in listed companies, and a lack of focus on minority shareholder returns, contribute to this decline. With the HSI currently around 40% below its peak, optimism arises from China’s easing stance on the tech sector and policymakers ramping up support through stimulus is buoying the outlook for recovery.
Investing in China presents positive prospects primarily due to its remarkably discounted valuations. The current metrics, as of writing, are considerably lower at 9.7/1.2/1.0, reflecting cheap valuations and positioning it as one of the attractively priced major markets globally. Additionally, these deep-discounted valuations and high-dividend Hong Kong-listed shares can potentially attract foreign attention and subsequently foreign inflow prospectively benefiting the index.
The Hang Seng Index has faced challenges in recent years. However, investors who can look past short-term noise stand to benefit in the long term. The Hang Seng’s stocks are deeply discounted and show promising growth prospects in China’s evolving macroeconomic landscape.
Ladder Strategy
Ladder Portfolio - Hang Seng Index | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total Investment in Portfolio | $100,000 | |||||||||||||
Investment in Phases | 33% | 33% | 33% | |||||||||||
Investment Value | $33,000 | $33,000 | $33,000 | |||||||||||
Entry Levels | Entry 1 | Entry 2 | Entry 3 | |||||||||||
Name | Quantity | Last Price* | Total | Quantity | Support | Total | Quantity | Stop Loss | Total | |||||
HSI Index | 14 | HKD 18,293 | $33,000 | 15 | HKD 17,380 | $33,000 | 16 | HKD 16,328 | $33,000 |
*Last Price as on 11th July 2024
Date: 12th July 2024
Source: Bloomberg
Multi-Decade Low Valuation &
Yearly Price Returns in the Last Decade
The Hang Seng Index is currently trading at HKD 17,832 with a P/E ratio of 8.7. Estimated earnings for 2024 are projected to be HKD 2,041. In October 2022 and January 2024, the index declined to a potential support level where the P/E ratio was 8.0. By multiplying the projected earnings of HKD 2,041 with a P/E ratio of 8.0, we arrive at a value of HKD 16,328, which could potentially serve as a strong support level for the index.
Date | Price Return (%) |
---|---|
31/12/2013 | -0.02% |
31/12/2014 | 1.14% |
31/12/2015 | -8.15% |
30/12/2016 | 3.16% |
29/12/2017 | 35.07% |
31/12/2018 | -15.30% |
31/12/2019 | 12.17% |
31/12/2020 | -4.60% |
31/12/2021 | -14.83% |
30/12/2022 | -15.01% |
29/12/2023 | -15.38% |
11/07/2024 | -4.43% |
Risks and Assumptions related to Back-tested trading strategies
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