Coronavirus sank Hong Kong’s stock market into bear territory – just don’t tell some of its superstars on a big run-up

After months of nail-biting bouts of volatility and panic selling driven by the coronavirus, Hong Kong’s stock market has transformed itself into a strange beast: part bull, part bear.

Investors suddenly finding themselves astride this hybrid creature are galloping into uncharted territory offering both rare opportunities and extreme hazards.

Technically, the Hong Kong market’s 50-stock Hang Seng Index tumbled down into bear territory on March 13, and continued to slide. Assuming its March low sticks, it still has considerable distance to go before entering its next official bull stage. But don’t tell that to individual stocks both on the benchmark and more broadly in the city’s equity market that are already posting great numbers.

The Hong Kong stocks now behaving like bulls have been on a spectacular run – the kind that some key analysts predict will continue in a post-coronavirus world that places a premium on the internet and the conveniences it brings.

‘After-the-coronavirus’ stocks at bargain basement prices are screaming ‘buy’ at gutsy investors, some analysts say

Meanwhile, the stocks still behaving like bears are padding around in a deep hole, even though some have recently made some gains. And they face daunting new challenges in the post-coronavirus world. Think here of shares related to travel, such as airlines and hotels. Even Macau’s glitzy casinos face a long road to returning to anything like the pre-coronavirus world of shoulder to shoulder gamblers at baccarat tables with crowds of maskless rooters breathing down their necks.

“The ‘stay-at-home economy’ is replacing the social economy. People don’t need to buy clothes or make-up. That’s what changed, and will make the polarisation [of Hong Kong stocks] more apparent,” said Alex Wong, managing director of Ample Capital.

“You should focus on which [companies] will be the winners and benefit the most in the post-pandemic world. The pandemic will change people’s behaviour,” said Wong, who also says investors should think local as the world re-evaluates the trade-offs of globalisation and countries return to making more essentials at home.

Recently, Hong Kong-listed Chinese online sector leaders have shot up. Health care platforms Ping An Good Doctor gained a jaw-dropping 58 per cent over the past three weeks, while Alibaba Health and Technology jumped 50 per cent. Meanwhile, over the past four weeks, ticketing-to-food-service-delivery giant Meituan Dianping has soared 38 per cent.

And then there are the old-economy bulls, such as Anhui Conch Cement, which, yep, makes cement. That’s a handy business to be in now since China is a country that loves to build its way out of economic difficulty. Anhui Conch has leapt 25 per cent in just over four weeks.

The bears also can be divided into two groups: those hammered by the virus but likely to recover before too long, and those expected to be kept down by new rounds of protests or by their inability to thrive in a vastly changed world. For now, Wong advises, just avoid most companies with their business focused on Hong Kong in favour of Chinese ones, as well as those related to travel, cosmetics and clothing.

This bear-bull phase of the coronavirus puts pressure on investors to study, differentiate and take charge of their portfolios.

Here’s a look at this mongrel:

Running with the bulls

China’s lockdowns accelerated trends toward all things connected to the internet, from food delivery and online games to medical consultations, as people cooped up in flats or quarantine centres tried out apps – and liked them. China’s move to speedier internet connections – known as fifth generation, or just 5G – will resume as China shows it has got the virus behind it, analysts say.

Three of these stocks must be on investors’ radar – the “ATMs,” as Everbright Sun Hung Kai wealth management strategist Kenny Wen calls them. They are Alibaba, the Chinese e-commerce giant and owner of the South China Morning Post, Tencent, the Chinese octopus that has its tentacles in everything from cashless pay to the hottest online games, and food delivery giant Meituan Dianping.

All three, like most stocks, got clobbered for about a month starting in mid-February over virus fears. But in about three weeks to Friday’s close, Alibaba has gained 20 per cent, Tencent 23 per cent. Meituan Dianping has gained 38 per cent over the past four weeks. The ATMs are heavily favoured by analysts tracked by Bloomberg.

Among Hong Kong-listed 5G plays – China Unicom, China Mobile, ZTE, and China Tower – Wen likes China Tower because of its earnings and company development over time. But Jefferies favours China Mobile, which it calls a “rare low-risk stock with secured dividend yield.” It has a “buy” rating on the stock, which it expects to rise to HK$72, or 19 per cent above Friday’s close.

“[I]nvestors is likely to have only a small selection of stocks that could provide low risk, high dividend yield (especially against close to zero interest rate), low multiples and high liquidity. China Mobile is one of these rare stocks, not only in China but also globally,” Jefferies analysts wrote.

Leon Qi, head of Asian regional financial research at Daiwa Securities, likes Ping An Good Doctor, formally known as Ping An health care and Technology. “It went up a lot but still room to go,” said Qi, who rates China’s leading online health care provider an “outperform”.

Ping An Good Doctor benefited from a stampede of Chinese people needing medical information during the lockdown. What will take the company and its stock to the next level, Qi predicts, is that Hubei province recently added Ping An Good Doctor to its medical reimbursement list, giving it the government’s stamp of approval as well as making it even cheaper for patients. Qi expects other provinces to follow suit, due to China’s shortage of doctors and reliance on hospitals for basic medical services.

“The pandemic will pass, and then we may see fewer individual users. But if local governments encourage [its use], then there is a longer, more sustainable revenue driver for the company,” Qi said. “It is sustainable, and bodes very well for the share price.”

In addition to Anhui Conch Cement, non-tech related stocks favoured by analyst Wong in this coronavirus period include Chinese property developers, particularly Longfor Group Holdings and Shimao Property Holdings.

“After the lockdown, property sales are quite quickly back to normal,” Wong said. “Today is a good time to buy. … Focus on leaders. Tough times will accelerate consolidation, which is good for leaders.”

Bear claws? Or bear opportunities?

In sharp contrast to high-flying internet companies are an array of stocks that have failed to recover from their pandemic plunges, which for some followed a hammering by the protests and the US-China trade war.

Some may never be able to truly crawl back up, analysts say, as their weak balance sheets could not withstand the dramatic cash flow shock. Investors should be wary of them, no matter how attractive their share prices now seem.

Others, however, present precious opportunities for bargain hunters with patience. The eventual winners in this family of bears are likely to be industry leaders with their business mainly in mainland China, analysts say.

Opportunities are slowly emerging in battered sectors that depend on crowds. Take, for example, casinos. Macau stocks were battered by the virus, as the flood of gamblers from China was cut to a trickle by severe travel restrictions. It’s unclear when the restrictions will be lifted, though some analysts are predicting it will be a gradual process. On Monday, Macau’s chief executive is expected to hold a news conference and may drop hints.

Macau casino operator Sands China is a favourite of Jefferies analyst Andrew Lee. “When there is a rebound, we think that the new suites from Sands China completed before the Lunar New Year could attract some of the premium mass, because the gamblers always like new products,” he said.

“It’s all about product, product, product. So with their new product of the suites, that could be a key differentiator.”

Meanwhile, large restaurant chains could increase their market share in this downturn if smaller players are squeezed out because they cannot afford months of little or no income, strategist Wong said.

Haidilao International Holding, the largest hotpot chain in China, looks increasingly attractive in terms of valuation to Kyle Wang, a fund manager based in Shanghai who said he has made a 100 per cent return from Ping An Good Doctor after increasing his investment over the past few earnings reports when it showed it was boosting its users and narrowing losses.

Haidilao’s stock has been on a downward path since November, worsened by the pandemic, which led it to shut close to 600 shops in China for nearly two months. Analysts are hopeful, though, and now give it 19 “buy” ratings and just one “sell,” according to Bloomberg data.

Equally under strain are financials. Rock-bottom interest rates around the world are squeezing banks’ margins, while volatility in the global capital market weigh on insurers’ investment returns. Plus, the decision by HSBC Holdings, the largest bank in Europe, to cancel its dividend dealt a huge blow to investors’ confidence in the sector.

But Shanghai investor Wang, who has also invested in Ping An Insurance, China’s largest insurer by market cap for over seven years, says he is confident the insurer can recover.

“Even though its premium has been affected because sales people cannot go face-to-face with customers, this hasn’t changed its long-term growth potential,” Wang said. He believes the financial ecosystem powered by technology that Ping An is building – such as corporate cloud services – could lead to new growth opportunities.

Ping An has 24 “buy” recommendations, one “hold” and one “sell”, according to Bloomberg.

It’s unclear how long this bull-bear phase will last. What will replace it – a genuine bull, a genuine bear or another weird hybrid? No one knows. And as long as the unpredictable coronavirus calls the shots, many traders will be looking for quick plays that allow them to get their cash back out of the market.

“What the level of caution tells me is that investors are looking to survive the short term and hoping to put long-term money back in play when the time is right,” said Stephen Innes, chief global market strategist at AxiCorp.