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We asked our writers to share their top China/Hong Kong stock picks for the month of December and here’s what they had to say:
Royston Yang: MTR Corporation
MTR Corporation Ltd (SEHK: 66) is my pick. Hong Kong’s mass transit railway operator is also a major property developer and landlord in the city. Its stable properties and the ubiquitous railway transport system which it runs, operating as a monopoly, offer strength and stability.
However, since the protests and riots broke out in Hong Kong, with the rail giant a key target, its share price has taken a dive – it peaked at HK$55.70 on 18 July and is now down 23% to around HK$42.85 (as of the time of writing). The valuation is undemanding at around 18x price-to-earnings, along with a 2.8% historical dividend yield.
MTR reported a 7% year-on-year rise in revenue for H1 2019, and stripping out exceptional provisions made for certain rail projects, underlying net profit would have increased by 26.4% year-on-year.
I believe MTR will eventually recover as the protests have to end someday. Investors can make use of this opportunity to pick up shares on the cheap as its valuation has been dented by poor sentiment.
Royston Yang does not own shares in MTR Corporation.
Jay Yao: BYD Co
“Buy when there is blood on the streets”. Isn’t that what they say? My top pick for December is battery maker and electric vehicle (EV) producer BYD Co Ltd (SEHK: 1211). Its shares have been sold off heavily due to terrible electric car sales figures caused by the rollback of electric car subsidies in China.
While that is bad news in the short term, it might be good news in the long term because there’s likely to be industry consolidation and, hence, this should drive many of BYD’s weaker domestic competitors out of business. BYD will likely be one of the remaining “national champions” in EVs, either with batteries or cars, and it will benefit from this long-term transition towards cleaner automobiles.
Although there isn’t a specific catalyst for the stock, Warren Buffett owns shares in BYD and he has held onto it for a while. If it’s good enough for Warren Buffett, it’s good enough for me.
Jay Yao does not own shares in BYD.
Tim Phillips: AIA Group
My motto when it comes to long-term investing is “buy quality”. That’s why my top pick for December is none other than the crème de la crème of Asian insurance stocks; AIA Group Ltd (SEHK: 1299). It’s been trading within a range of HK$70-80 per share since hitting an all-time high of HK$88.50 in the middle of July this year.
The reason for the fall? The protests that have rocked Hong Kong, one of its main revenue-generating geographies given the plethora of Mainland Chinese who frequent the city to buy insurance policies.
However, what tends to be overlooked by a lot of investors is its unbelievably-strong and fast-growing China business (AIA China) which is making up for the shortfall in Hong Kong. Furthermore, it’s newly-opened sales centres in Tianjin and Shijiazhuang (following the granting of licences in the respective regions) have shown encouraging early results.
As my colleague Jay Yao noted, the opening up of China’s insurance market will benefit foreign players. This should indirectly benefit AIA – even though it’s technically the only wholly-owned foreign insurer that operates in China, the number of regions it operates in is still limited and the approval process to expand its footprint could be expedited.
Tim Phillips owns shares in AIA Group.
Alex Perry: Trip.com
Heading into 2020, the stock I’m keeping an eye on is Trip.com Group Ltd (NASDAQ: TCOM). The Chinese travel company (formerly known as Ctrip.com International) had a phenomenal 2019, and is gearing up for more growth in the future.
International travel is on the rise around the world. The International Air Transport Association estimates that the number of individuals traveling will double by 2035. A lot of that growth comes from China, with Chinese flyers expected to rise to 160 million annually by the end of 2020.
Trip.com also has a firm hold on the Chinese market, selling over 30% of the economy seats purchased in the country, leaving ample room for growth.
The company remains a good bet because of its expansion outside of Asia. It is reaching international users through its Skyscanner subsidiary and third-quarter 2019 earnings laid out further plans for expansion in other countries such as Japan.
Alex Perry does not own shares in Trip.com.
Lawrence Nga: Weibo Corp
After touching its all-time high of above US$140 in 2018, Weibo Corp‘s (NASDAQ: WB) share price has since lost about 70% of its value. At today’s price of US$42.81, Weibo looks like a candidate worth exploring further. Here are two reasons to support my view.
To start with, the company remains a leading social media platform in China with about half a billion monthly active users. Such scale positions it well to grow its business for the foreseeable future. Secondly, the market seems to be quite pessimistic on the company right now, driven by factors such as weaker growth, the US-China trade war, and more.
Putting both factors together, I think the stock offers a compelling risk-reward opportunity to investors now.
Lawrence Nga does not own shares in Weibo Corp.
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