Taiwanese money manager SinoPac Financials is making a killing with its Greater Bay Area fund after scoring 54 per cent gain over the past 12 months, while a Ping An Insurance vehicle earned almost 20 per cent. The key to beating their peers may just lie in tracking companies in the richest city, Shenzhen.
The Innovation Top 50 Index of companies that invest the most in research and development has produced consistently superior returns over other bay area family of indices compiled by Hang Seng Indexes Company. Almost two-thirds of its index members are based in Shenzhen, whose stocks are accessible to investors via the Stock Connect trading link with Hong Kong.
The gauge advanced 7.2 per cent this year through July 13, according to Post calculations. It climbed 12.9 per cent over 12 months, 115 per cent over three years and 96 per cent over five years. It outperformed the Hang Seng Index on each of those investing horizons by 4.4 to 117 percentage points.
The results underscore why global funds can ill-afford to ignore the bustling region, a cluster linking nine cities in China’s Guangdong province with Hong Kong and Macau with an economic output of US$1.7 trillion or about 8 per cent of the US economy. The index, which counts Shenzhen Mindray Bio-medical Electronics and Tencent Holdings as its biggest members, has remained steadfast even in the face of regulatory clampdown over the past eight months.
“Investors can’t go very wrong by sticking to the tech giants in Shenzhen,” said Stanley Chan, director of research at Emperor Securities. “Technology is still the trend, and companies in Shenzhen have a strong advantage in this field. Beyond the top-tier names, “investors can still find hidden gems with strong growth potential,” he added.
The 191 million yuan (US$29.5 million) GTS GBA Theme Mixed Fund has gained 20.6 per cent this year, bringing its performance to 54 per cent over a 12-month horizon, according to Bloomberg data. It’s managed by a SinoPac-Xiamen Rural Commercial Financial joint venture. The 410 million yuan Ping An CSI Guangdong-Hong Kong-Macao GBA exchange-traded fund earned 19.5 per cent over a one-year period.
Manulife Investment Management, whose US$32 million GBA Growth & Income Fund has risen 2.6 per cent this year and 12 per cent over one year, sees several themes as core to its investing strategy in the region.
“We have identified four specific themes in innovation, consumption upgrade, finance and real estate, and infrastructure [with] the greatest long-term growth potential,” said Winson Fong, a senior portfolio manager in Hong Kong at Manulife Investment Management. “Our portfolio construction and stock picks will resonate [with these] themes.”
China officially unveiled the bay area project in 2017 to spearhead growth and innovation in its manufacturing and innovation hotbed. It links nine cities in Guangdong province with Hong Kong and Macau and allows for seamless financial services from banking to wealth management within the cluster.
Shenzhen Mindray has risen 1.9 per cent this year and 31.2 per cent over the past 12 months. It soared about 790 per cent since listing in October 2018. WeChat owner Tencent was unchanged year-to-date and has risen about 10 per cent over the past 12 months.
China’s regulatory clampdown that began with the foiling of Ant Group’s jumbo stock offerings in November has since evolved into an attack this month on Didi Chuxing over cybersecurity oversight. The 30-member Hang Seng Tech Index has lost US$502 billion in market capitalisation from its peak on February 17.
“The excitement for me about GBA is more about the future, how they can bring better services and develop more of a sizeable hub in terms of technology innovation,” said William Yuen, investment director in Hong Kong at Invesco. “Technology innovation is a very big part of the economy, and I don’t see any reason why they want to destroy that.”
The Innovation Top 50 also reveals other stock gems.
Huizhou-based lithium battery maker Eve Energy, with an index weighting of 8.26 per cent, has appreciated 49.1 per cent this year and 135 per cent over the past 12 months.
The Industrials Index, another GBA family index, has also produced consistently good returns of 12.9 per cent to 87 per cent over the four investment horizons, according to Hang Seng Indexes.
Its top performers include glass product manufacturer Zhuzhou Kibing, which has risen 66 per cent this year, 166 per cent over the past 12 months and 388 per cent in three years. Shenzhen Sunlord Electronics, which manufactures electronic components, has gained 57 per cent this year, and 114 per cent over the past three years.
The Greater Bay Area will underpin the government’s plan to introduce the Wealth Management Connect link later this year, easing capital flows between Hong Kong and mainland China.
Hong Kong investment management company Chartwell Capital, which has about US$100 million of assets with exposure to the bay area, prefers small-mid cap stocks focused on lifestyle and consumption. Some of its picks are Hong Kong-based firms, Four Seas and Tai Hing, which are expanding into the region’s market.
They would be among the players who could benefit the most in the coming 10 to 20 years when they step up their expansion into the Greater Bay Area, founder and chief investment officer Ronald Chan said.
“We have full confidence that the GBA will provide extremely attractive opportunities in the coming decades,” said Fong at Manulife. “Selected key cities like Hong Kong, Shenzhen [and others] have already delivered outstanding economic success in the past 20 years.”