The Hong Kong market ends the first half of 2022 way off its lows and both the Hang Seng (HSI) and Hang Seng Tech (HSTech) indices even entered a bull market as the index increased by more than 20% from the bottom recorded in March 2022.
We have also noted that the China Tech regulatory risk is over and provided 6 reasons why it is time to buy China now.
YTD Performance of indices
| Index | 6M/YTD |
| Hang Seng Index | -6.1 |
| Hang Seng Tech Index | -14.1 |
For the HSI, 24 out of 69 stocks are in the green. 36 out of 69 stocks have outperformed the index. The stocks in the green are as follows:
| Company | YTD performance |
|---|---|
| CNOOC | +51.24% |
| CHINA OVERSEAS | +34.34% |
| OOIL | +25.63% |
| WH GROUP | +23.93% |
| BOC HONG KONG | +21.33% |
| BYD COMPANY | +17.78% |
| GALAXY ENT | +16.71% |
| BUD APAC | +14.91% |
| CK ASSET | +12.92% |
| CHINA RES LAND | +11.59% |
| BANK OF CHINA | +11.39% |
| HSBC HOLDINGS | +10.13% |
| AIA | +8.21% |
| PETROCHINA | +7.78% |
| CHINAHONGQIAO | +7.78% |
| ICBC | +5.91% |
| CHINA LIFE | +5.73% |
| CKH HOLDINGS | +5.47% |
| CHINA MOBILE | +4.70% |
| HAIDILAO | +3.98% |
| CITIC | +3.25% |
| SANDS CHINA LTD | +3.08% |
| POWER ASSETS | +1.54% |
| LONGFOR GROUP | +0.95% |
For the HSTech, only 5 out of 30 stocks are in the green. 14 out of 30 stocks have outperformed the index. The stocks in the green are Li Auto, Kuaishou, Trip.com, Baidu and JD Health.
Hang Seng Index Top 5 and Bottom 5 performers
Top 5 Performers
The best performer was CNOOC as by far as Oil and Gas prices have remained elevated throughout the period. China Overseas Land came in second due to its strong balance sheet and State Owned Enterprise heritage which enabled the company to ride through the property sector’s credit crisis, continuing to outperform in terms of presales this year as buyers who had less confidence in its peers chose to purchase properties from China Overseas Land.
OOIL owns Orient Overseas Container Line (OOCL), one of the world’s largest container shipping companies. Shipping was one of the industries that was a beneficiary of disrupted supply chains as cargo ship delays meant that containership rates were elevated throughout the period.
WH Group, being the largest pork company in the world, was a beneficiary of higher commodity prices and fears over supply imbalances as Russia was one of the top 5 pork producers with approximately 4% market share while Ukraine’s market share was estimated at 0.8%.
With China contributing nearly 40% of WH Group’s revenue, WH Group’s share price started the year on a downtrend as China’s Hog and Pork prices were on a downward until the first quarter of 2022 before recovering towards the end of the second quarter and WH Group’s share price followed similarly. This was in spite of WH Group’s North American operations contributing just over 50% of revenue with USA’s Hog and Pork prices maintaining an upward trend through the entire first half of 2022.
BOC Hong Kong is a key beneficiary of rising interest rates as net interest margin continues to widens gradually in the current interest rate environment coupled with positive economic sentiments in China amidst fiscal and monetary policy stimulus.
| Rank (from best) | Company | 6M/YTD (%) |
| 1 | CNOOC | +51.2 |
| 2 | China Overseas land | +34.3 |
| 3 | Orient Overseas Intl (OOIL) | +25.6 |
| 4 | WH Group | +23.9 |
| 5 | BOC Hong Kong | +21.3 |
Bottom 5 Performers
For the Top 3 worst performing stocks, Sunny Optical, Techtronics and Shenzhou Intl. All three companies were impacted by supply chain, inflation and recession concerns. Sunny optical provides optical solutions such as lens to Apple’s iPhones and as consumer confidence decreased, this has affected mobile phone demand.
Techtronics was also in a similar position as its power tools are used by many for home improvements projects. It has since been affected by lower consumer confidence as well as a post-pandemic normalisation as homeowners cease home improvement projects that they carried out during the peak of the pandemic. Higher interest rates have also led to higher mortgage rates which in turn lower the demand for new housing and the requirements for power tools.
Shenzhou Intl, being an integrated OEM knitwear manufacturer for brands such as Nike, Adidas and Uniqlo has been affected as lower consumer confidence leads to lower consumer discretionary spend.
HK & China Gas was affected as commodity and energy prices rose sharply thus causing its margin on gas sales to shrink as it was unable to fully pass on costs. Demand was further affected by the continued COVID-zero policy in place.
Country garden, being one of the Big 3 property developers (Other 2 being Evergrande and Vanke) continued to underperform as the China property market was still embroiled in a debt crisis with many developers still unable to meet their debt obligations.
| Rank (from worst) | Company | 6M/YTD (%) |
| 1 | Sunny Optical | -48.1 |
| 2 | Techtronic Industries | -47.3 |
| 3 | Shenzhou Intl | -36.6 |
| 4 | HK & China Gas | -30.4 |
| 5 | Country Garden | -29.8 |
Hang Seng Tech Index Top 5 and Bottom 5 performers
Top 5 Performers
Li Auto has been a beneficiary of China’s continued carbon neutral push as the Chinese government considers extending incentives for new energy cars that were originally set to expire in 2022 so as to ramp up consumer interest in China’s EV markets.
Kuaishou was one of the tech companies that was able to maintain revenue and user growth through the regulatory crackdown period as demand for its app offerings remained robust. Kuaishou also improved on its key operating metrics by improving monetisation and optimising cost structure and operating efficiency
Trip.com benefited from a share price revival in the final week of June 2022 when China announced the reduction of the inbound quarantine period, without which it would have likely ended the half year in a negative position.
While both Baidu and JD Health were able to outperform the HSTech index, both companies were only up slightly in this year to date. Both these companies were hit by the tech regulatory crackdown, however, Baidu was able to deliver revenue above analyst expectations driven by Baidu AI Cloud.
For JD health, share prices recovered as the industry is a beneficiary of COVID-19 lockdowns. The crackdown is not quite over yet for the internet healthcare platforms as China’s National Medical Products Administration recently released an opinion draft paper considering the ban for third party platforms from directly participating in online drug sales.
| Rank (from best) | Company | 6M/YTD (%) |
| 1 | Li Auto | +24.6 |
| 2 | Kuaishou | +21.3 |
| 3 | Trip.com | +16.1 |
| 4 | Baidu | +2.7 |
| 5 | JD Health | +0.2 |
Bottom 5 Performers
Bilibili was severely impacted by various issues such as the regulatory crackdown as it saw revenue growth slow significantly as companies delayed their advertising spend. The company had to slash jobs and during the recent COVID-19 lock down in March 2022, it even donated free user accounts and access to Shanghai residents as part of the company’s efforts to contribute to the COVID-19 situation.
Sensetime saw its share fall of 46.8% on the last trading day of June 2022 due to the expiration of the IPO lockup period for its institutional investors and management. Excluding this one day decline, Sensetime would have ended the period much more favourably.
AAC Tech has seen margins shrink over the past few quarters due in part to the slow down in global smartphone demand and supply chain and other COVID-19 related disruptions to its operations.
One would have expected Hua Hong Semi to perform well as it was supported by policy tailwinds as China focused more investments so as to build self sufficiency in the crucial chip sector but it was similarly affected by COVID-19 related disruptions and also concerns over slowing demand.
| Rank (from worst) | Company | 6M/YTD (%) |
| 1 | Sunny Optical | -48.1 |
| 2 | Bilibili | -44.0 |
| 3 | Sensetime | -43.1 |
| 4 | AAC Tech | -41.4 |
| 5 | Hua Hong Semi | -34.0 |
Hang Seng Index Top 5 dividend yield stocks
OOIL, Sinopec and CNOOC all saw much higher dividends this year as these stocks were either in the shipping or Oil & Gas industries which both saw outsized performance in recent times.
China Hongqiao, being one of the world’s largest aluminium producers in the world, benefited from higher aluminium prices in the past year which saw the company deliver highest profits in the last 5 years and hence the company also rewarded its shareholders accordingly.
Bank of China has seen gradual increases to its dividend over the last five years but a lacklustre share price growth over perpetual concerns over the robustness of this Big 4 China bank’s balance sheet and the need to support the China’s economy meant that dividend yield remained high.
| Rank (from best) | Company | 6M/YTD (%) | Yield (%) |
| 1 | Orient Overseas Intl (OOIL) | +25.6 | 28.9 |
| 2 | Sinopec Corp | -2.8 | 16.3 |
| 3 | CNOOC | +51.2 | 14.3 |
| 4 | China Hongqiao | +7.8 | 11.8 |
| 5 | Bank of China | +11.4 | 8.7 |
Closing statement
The first six months 2022 has been a period of overall decline thus far with the Hong Kong indices continuing on its decline from 2021. Many parts of the world now face concerns of a potential recession and a contractionary monetary policy intended to combat inflation. In Hong Kong, the regulatory crackdown has probably seen its worst and with the Chinese government indicating broad based support to bolster its economy, we stated that we believe the bottom was in for most Chinese stocks.
Some of these stocks that have outperformed and may soon see its share price revert to much lower levels while other stocks that have underperformed may continue to underperform until the reasons for the underperformance are alleviated.
Alvin shares how he picks China growth stocks for the Dr Wealth portfolio, if you’re looking to scoop up some China stocks at their bottoms, join him at his Growth Dragons live webinar here.