21 Hong Kong Stocks with Superior Risk Adjusted Returns YTD
Past performance does not guarantee future results
I am Qi Wang, CEO of MegaTrust Investment (HK), a boutique fund manager based in Shanghai and Hong Kong. Total 25 years of experience in Chinese and global equities. This is my blog for MegaTrust clients and professional investors. If you’d like to learn about China from a practitioner’s point of view, this is the right newsletter for you.
I think Chinese stocks with better risk-adjusted returns are a good starting point in today’s market. Here are 21 stocks with the highest YTD return / risk ratios, spanning Telecom, Banking, Brokerage and Energy.
“Today, the risk-adjusted return is not just an abstract number. It is the only attainable return perhaps. Without downside protection, you’d be out before the upside comes in, willingly or unwillingly.” Qi Wang’s Daily Reflection on China
Recently, I argued for the importance of using “risk-adjusted returns” in the current environment. There should be little doubt by now that the Chinese economy is improving, based on the recent macro data. In fact, most analysts are positive on China markets since the beginning of this year… But the road ahead can be quite choppy.
Our exposures to Chinese SOEs and Hong Kong Reopening are meant to achieve exactly that: superior risk-adjusted returns with some downside protection. This way, we can hopefully keep our money (and sanity) when something like this hits the fan.
Fundamentally, we still like the Chinese Internet leaders, such as Tencent (0700.HK), Alibaba (BABA, 9988.HK), and Netease (NTES, 9999.HK). No matter what, these are still well-positioned, well-run companies. Valuation is extremely reasonable. But the risk-adjusted returns are disappointing so far.
For example, as of 04/13/2023, Tencent (0700.HK) has generated an YTD return of 14.5%, with an annualized volatility of 41% and a maximum drawdown of 20.7%. In contrast, Agriculture Bank (1288.HK), a stated-owned company, offers an YTD return of 13.1%, with a volatility of 14% and a drawdown of just 1.7%.
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