Why Chinese SOEs? Why Now? (Part Two)
Three reasons that we like the SOEs as trading ideas
Financial deleveraging, improving investor communication and minor structural changes are three reasons that we like the Chinese SOEs. But the sector still has lots of legacy issues that can’t be fixed overnight. This is why we think the SOEs are just trading ideas not necessarily long-term holdings at this point.
Next we’ll talk about what specific stocks we like…
In part one of the series, I talked about the outperformance of Chinese state-owned enterprises (SOEs) in Hong Kong, the so-called “SOE Alpha”.
Below is a relative return chart of China Mobile (0941.HK) vs. the Hang Seng Index (price ratio of the two). When the price ratio line (top half) is up, China Mobile outperforms the index. When the price ratio line is down, China Mobile underperforms the index.
As you can see, China Mobile underperformed the market for several years, until January 2021. Since then, the stock has been up 51% while the index is down 29%, an Alpha of nearly 80%!
China Mobile is not alone here. A number of large SOE stocks have similar charts, though the starting point and outperformance vary. ICBC Bank (1398.HK), PetroChina (0857.HK), China Life (2628.HK), Shenhua Coal (1088.HK) etc…
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