In the dark days of the 2008 stock markets meltdown, investment advisers were quick to recommend boring old utility stocks as a bulwark against loss. Today this advice is back again amidst talk of a double dip in the market and the prospect of turbulent times ahead.
The conventional wisdom is that cautious investors should hold a proportion of their equity holdings in utilities, which offer consistent dividends and are said to weather good times and bad. Even the more adventurous investor might wish to see a number of utility stocks in a balanced portfolio which should, in theory, prove more resilient to the vagaries of the market.
As ever, dispensers of conventional wisdom clearly did not visit Hong Kong, where it is quite hard to identify utility stocks and even once they are identified, questions arise as to whether they are indeed utility plays or something else.
Generally speaking, the definition of utilities is straightforward and covers companies in sectors like electricity, gas, transport and telecommunications. But the increasingly diversified nature of utility companies, and the propensity of those in Asia to get involved in real estate, makes it hard to find what might be described as pure utility plays.
Lamentably, the Hang Seng Index does not offer much help in identifying utility stocks as it only includes four stocks in this category: CLP Holdings, Hong Kong & China Gas, Hongkong Electric and China Resources Power. Together they account for almost 5 per cent of the HSI's capitalisation.
In the wider market, another five utility companies are identified by the index compilers. But only the top four are sufficiently focused to be considered pure utility plays in the Hong Kong market. The overwhelming bulk of their earnings come from the utilities business although Hongkong Electric, part of Li Ka-shing's Cheung Kong Group, now derives almost a third of its income from non-electricity generation sources. Hong Kong & China Gas, meanwhile, obtains a more modest 7 per cent of its income from the non-gas business and is part of the Henderson Group, which is prone to shuffling resources around. CLP Holdings and China Resources Power, however, are highly focused on their core business.
