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Hong Kong investors could find a haven in low-volatility stocks in the Hang Seng Index family amid difficult year

  • The Hang Seng Low-Volatility Index family of stocks has a history of paying dividends and has outperformed the benchmark gauge this year
  • ‘The outperformance of the low-volatility index is attributable to its stable cash flows and defensive nature,’ Everbright analyst Zhang Yusheng says

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A pedestrian passes by the Hong Kong stock exchange electronic screen in Hong Kong. Photo: AP Photo
Zhang Shidongin Shanghai
Chasing a basket of stocks with subdued price swings could be a successful strategy to ride out the market uncertainty in Hong Kong this year, analysts say, pointing to the impact on trading from the financial tightening in the US, slowdown in China and lingering geopolitical tensions.
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The Hang Seng Low-Volatility Index, which comprises 40 such stocks from MTR to Bank of China (BOC) and Power Assets that also pay consistent dividends, has risen 2.3 per cent this year, beating the 0.2 per cent gain in the benchmark Hang Seng Index. It has also outperformed other major members of the Hang Seng index family, including the Hang Seng China Enterprises Index and the Hang Seng Tech Index.

Demand for haven assets has been stoked by the wild ride in local stocks this year. The Hang Seng Index erased the entire year’s gain after China’s reopening sparked a brief rally, as a slew of key economic data fuelled worries over a stalled recovery. The HSI Volatility Index, the local version of the “fear gauge”, jumped by 16 per cent in May, the steepest monthly jump since October.

“The outperformance of the low-volatility index is attributable to its stable cash flows and defensive nature that can offer stable returns in times of volatility,” said Zhang Yusheng, an analyst at Everbright Securities in Shanghai. “Hong Kong stocks will still face increased volatility going forward should the US economy slide into recession.”

The low-volatility index rose 0.2 per cent to 6,538.85 on Thursday. It has surrendered some gains after rising to a one-year high on May 8. The measure has a dividend yield ratio of 6.33 per cent, compared with 3.8 per cent for the Hang Seng Index, according to data compiled by Hang Seng Indexes Co.

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