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Why We Think Stock Picking Is Worth Doing

Although a low-cost ETF works just fine for novice investors who may be satisfied with the broad market’s return, we believe that you deserve higher, market-beating returns by identifying and holding great business for the long term. 

Actions speak louder than words! In this article, I will walk you through a few examples by reviewing some of the bellwether stocks in the Hong Kong market over the past three decades.

Case Studies in the 1990s

HSBC (SEHK:0005)

Regarded as the most successful banker in HSBC history, Sir William Purves, who was chairman from 1991 to 1998, led Lion Bank to increase its global footprint by acquiring Midland Bank in the UK. Moreover, buoyed by a booming services industry and double-digit GDP growth in Hong Kong, HSBC had a golden era in the 1990s. By the turn of the century, HSBC had become the world’s second-largest bank after Citibank. HSBC’s split-adjusted share price rose from HKD8.23 to HKD100.93 in the 1990s. That stunning 1,126% return beat the Hang Seng Index’s return of 498% over the same period.

Cheung Kong Hutchison (SEHK:0001)

This leading real estate company was founded by Hong Kong’s richest man, Li Ka Shing. By acquiring Hutchison Whampoa, “Superman” Li expanded his business into port operations, retail, energy, and telecommunications with footprints all over the world. In addition to its traditional profitable real estate business, port operations and telecom are the two main drivers for CKH’s growth. Thanks to its successful transition from production to services in the 1990s, Hong Kong became the world’s largest port in the late 1990s. Selling UK mobile phone operator Orange to Germany’s Mannesmann provided a record-breaking profit to CKH in 1999. CKH’s stock price soared from HKD5.56 to HKD56.88, with a return of 923% in the 1990s.

Sun Hung Kai Property (SEHK:0016)

Unlike Cheung Kong, Sun Hung Kai Properties mainly focuses on real estate development. SHKP is best known for its high-quality building that sell at premium prices. SHKP puts its longstanding belief in “Building Homes with Hearts” into practice. Vertical integration from planning, material sourcing, and construction, through to project monitoring and property management, ensures high standards in every aspect of development. The 1990s was the high growth stage for real estate developers. Being the market leader, SHKP rose from HKD11.36 to HKD81 with an impressive 613% return, despite the bursting of the real estate bubble in 1997.

Case Studies in the 2000s

PetroChina (SEHK:0857)

PetroChina, listed at HKD1.20 in April 2000, is the largest oil company in China. The low valuation compared to its international counterparts soon attracted Warren Buffett’s attention. After reading PetroChina’s annual report, Buffett thought it could be worth USD100 billion, while it was still only valued at just USD35 billion in 2002. Buffett made a quick decision to purchase USD488 million of PetroChina shares in 2002 and 2003, when the price was below HKD2.00. During 2003, oil prices rose above USD30 per barrel, reached USD60 by August 2005, and peaked at USD147.3 in July 2008. The price increases were mainly due to the rising demand for oil from emerging countries, China in particular, and worries over peak oil. Buffett sold his stake gradually for USD4 billion, when the share price was more than HKD12 in 2007. His investment in PetroChina compounded at about 55% annually between 2002 and 2007.

Jiangxi Copper (SEHK:0358)

China joined the World Trade Organization in Nov 2001. China, which was positioned as the World’s Factory, kickstarted a remarkable stretch of annual double-digit GDP growth throughout the 2000s. The price of copper also benefitted from the 2000s commodities boom, surging from USD1600 per metric tonne in 2000 to USD9000 per metric tonne in mid-2006. Copper is widely used in infrastructure, manufacturing, and properties. As the largest copper miner in China, Jiangxi Copper rose from HKD0.91 in early 2000 to HKD18.36 at the end of 2009. When counting the peak in Oct 2007 at HKD32.4, it’s return was 3,460%.

Case Studies in the 2010s

Sands China (SEHK:1928)

Sands China, which is a subsidiary of Las Vegas Sands (LVS US), is the leading developer of resorts and casinos in Macau. Macau is the only region in China that offers legalised casino gaming, and its casinos have historically offered little in the way of non-gaming facilities. The monopoly of Macau’s gaming industry formally ended in 2002, and it became the largest gaming market in the world in 2006. Sands brings a Las Vegas business model to the “Monte Carlo of the Orient” to make Macau Asia’s premier business, leisure, convention and gaming destination. EBITDA climbed steadily from USD809 million in 2009 to reach a peak of USD3,203 million in 2014, then declined to USD2,083 million in 2016. Sands China went listed in Nov 2009, and its price went up dramatically from HKD9.71 in January 2010 to top out at HKD68 in February 2014. It is now trading at HKD38 in March 2019. By 29 March 2019, Sands China had risen 291%, outperforming the Hang Seng Index’s return of 31% over the same period.

Link REIT (SEHK:0823)

Link REIT is the first and largest REIT listed on Hong Kong Stock Exchange. Its portfolio consists mainly of retail properties. Under the Individual Visit Scheme, mainland tourists can come to Hong Kong without an entry visa. The huge inflow of mainland tourists has turned out to be a growth engine for Link REIT in the 2010s. Its annual distributions have grown in the low teens, and its Net Asset Value has appreciated at around 20% annually, over the past decade. Unsurprisingly, its stock price has risen from HKD19.22 in Jan 2010 to a recent high of HKD88 in Mar 2019. Its price return of 363% excluding dividends (total return 441% with HKD16 dividends) has made it the best REIT ever!

Tencent (SEHK:0700)

This stock-market story would not be complete without mentioning China tech giant, Tencent. It is the king of online & mobile games and social media. It is now the largest company on the Hong Kong Stock Exchange. Tencent has delivered astonishing profits for investors since it listed in 2004 at split-adjusted price HKD0.88. the shares are now trading at HKD450. Tencent started to garner attention in the 2010s after becoming a constituent of the Hang Seng Index in mid-2008. Even if we only count the return from the beginning of 2010 (HKD33.7) to Mar 2019 (HKD350), it is still an amazing 938%. Leveraged by the network effect of its WeChat and QQ platform, Tencent provides increasingly more services to internet users. Its massive competitive advantages and wide-moat business model make it difficult for other companies to compete. Tencent is, therefore, a perfect target for investors looking to ride on the growth on the internet.

Brexit has been catching investors’ eyes across the globe recently. Many UK based banks are listed in Hong Kong and tycoon Li Ka Shing’s business empire has substantial assets in the UK. Moreover, UK property is one of the favourites among Hong Kong individual investors traditionally.

We’ve recently published a Special FREE Report: “Brexit: Your 5-Step Investor’s Survival Guide” to help you conquer the Brexit mayhem; these are designed to try and help you protect your own portfolio (irrespective of the ultimate Brexit outcome) and explain how we think you could even turn the current situation to your advantage.

We highly encourage you to download a free copy right now—click here now!

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Hayes Chan, CFA doesn’t own shares in any companies mentioned.