10 Most Undervalued Hong Kong Stocks To Buy According To Hedge Funds
In this article, we will take a look at the 10 most undervalued Hong Kong stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued Hong Kong Stocks To Buy According To Hedge Funds.
While the rest of the world is still debating whether or not financial markets are currently going through recession, Hong Kong happily reported that it has already come out of recession, with the country’s economy expanding 2.7% in the three-month period ending March 31, surpassing estimates of just 0.5% growth. It was the first quarterly gain in gross domestic product in more than a year. It’s also important to note that Hong Kong’s economy saw a decline of 4.1% in the last quarter of 2022.
The biggest impetus for this growth was the lifting of pandemic controls and full reopening of the economy. This caused a massive growth in retail sales and tourism. Bloomberg in a report quoted Hong Kong government figures which said visitor arrivals in Hong Kong jumped to 2.5 million in March, showing a whopping 68% growth from February. Government and independent analysts now believe Hong Kong will continue to see healthy growth for the rest of 2023.
Eric Zhu, an economist working for Bloomberg Economics, said in a note that based on the strong GDP growth in the first quarter, he was upping the 2023 forecast to 5.2%, up from 3.2% growth projection previously given in February.
“That would more than make up the ground lost in 2022 when GDP shrank 3.5%,” Zhu said.
What Makes Hong Kong Special?
Being a financial hub and home to some of the major banking companies’ headquarters, Hong Kong has always been the point of attention for international economists. Jitters in the global economy and financial system are directly felt in Hong Kong, whose strength and weakness lies in its reliance on external factors.
Thomas Helbling, the IMF’s deputy director for the Asia and Pacific department, said during a briefing on May 2 that Hong Kong is expected to gain from the rebound in demand in the region. However, Helbling said IMF is “most worried about external” risks as the global economy “has been slowing.” Helbling also said that further tightening of credit in the US and Europe could also hit Hong Kong through “trade channels.”
Hong Kong's Dramatic Comeback
According to a report by investment banking firm Natixis, Hong Kong lost a whopping $27 billion in potential gains due to COVID-related restrictions and overall effects of the pandemic. Earlier this year, the firm said in a report that had the pandemic not happened, Hong Kong’s economy would have grown an average annual 2.8% over the past three years.
But the new Hong Kong leader John Lee, who came in power back in the summer of 2022, took several measures to spur growth in the Hong Kong economy, including lifting restrictions, taking measures to attract global talent and slow down the exodus of top professionals from the region which started in 2020. Lee is also taking key measures to revive business conferences in the region, according to Bloomberg.
Investment Opportunities in Hong Kong
Hong Kong remains one of the biggest emerging markets in the world. Despite the volatility and risks, the region remains full of growth prospects. Lazard Asset Management said in a latest report on emerging markets that despite a lot of capital exodus, several asset classes in emerging markets are “under-owned and attractively valued." The firm said that earnings growth in the region is expected to remain higher in the region in 2023 and 2024, fueled by “emerging Asia.”
The Lazard reports highlights how emerging markets were the first ones to get hit amid the financial turmoil that started amid rising inflation and rate hikes. However, Lazard said an important trend to note here is FIFO (first in, first out), since the firm believes emerging markets are now coming out of the crisis and it’s the developed world that is facing the brunt of the economic downturn. This trend is evident in Hong Kong’s economy trajectory, too. Lazard believes emerging markets are set to continue on their path of growth for several years to come.
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Our Methodology
For this article we scanned Insider Monkey’s database of 943 hedge funds and picked the top 10 stocks that meet the following conditions:
PE ratios less than 25
Headquartered/founded in Hong Kong or have a significant presence in Hong Kong or trading on Hong Kong Stock Exchange
We ranked the selected stocks based on the number of hedge fund investors as of the end of the first quarter of 2023. Some notable names in the list include Alibaba Group Holding Limited (NYSE:BABA), HSBC Holdings plc. (NYSE:HSBC) and Baidu, Inc. (NASDAQ:BIDU).
Most Undervalued Hong Kong Stocks To Buy According To Hedge Funds
10. Highway Holdings Limited (NASDAQ:HIHO)
Number of Hedge Fund Holders: 1
Hong Kong-based Highway Holdings Limited (NASDAQ:HIHO) makes metals, plastics, and electronic components. Highway Holdings Limited (NASDAQ:HIHO) is trading at around $2.10 as of May 30. It is a high-yield dividend stock, with a yield of about 15% as of May 30. Highway Holdings Limited (NASDAQ:HIHO) recently upped its quarterly dividend by a whopping 100%.
Jim Simons’ Renaissance Technologies reported owning 197,315 shares of Highway Holdings Limited (NASDAQ:HIHO) at the end of the first quarter. It was the only hedge fund in Insider Monkey’s database that held stakes in Highway Holdings Limited (NASDAQ:HIHO).
9. AGM Group Holdings Inc. (NASDAQ:AGMH)
Number of Hedge Fund Holders: 12
Headquartered in Hong Kong, AGM Group Holdings Inc. (NASDAQ:AGMH) is operating in the fintech, crypto mining and blockchain space. AGM Group Holdings Inc. (NASDAQ:AGMH) is known for its trading solution called MetaTrader 5.
In December 2022 AGM Group Holdings Inc. (NASDAQ:AGMH) posted results for the first half of 2022. Revenue in the period came in at $113.6 million, up 209.5% from $36.7 million in the second half of 2021.
Just one hedge fund in Insider Monkey’s database held stakes in AGM Group Holdings Inc. (NASDAQ:AGMH) as of the end of the first quarter of 2023. That hedge fund is of billionaire Izzy Englander. It owns 11,219 shares of AGM Group Holdings Inc. (NASDAQ:AGMH).
8. Oriental Culture Holding LTD (NASDAQ:OCG)
Number of Hedge Fund Holders: 2
Headquartered in Hong Kong, Highway Holdings Limited (NASDAQ:HIHO) operates an ecommerce platform for artwork and collectibles. Highway Holdings Limited (NASDAQ:HIHO) has lost a whopping 80% in value over the past 12 months but gained 14% in the past six months.
Two hedge funds in Insider Monkey’s database had stakes in Highway Holdings Limited (NASDAQ:HIHO) and both these hedge fund shareholders are worthy of a mention. Citadel Investment Group of Ken Griffin owns 54,362 shares of Highway Holdings Limited (NASDAQ:HIHO), while Renaissance Technologies of Jim Simons owns 131,078 shares of the company.
OCG is one of the notable stocks in our list, in addition to Alibaba Group Holding Limited (NYSE:BABA), HSBC Holdings plc. (NYSE:HSBC) and Baidu, Inc. (NASDAQ:BIDU).
7. GigaCloud Technology Inc. (NASDAQ:GCT)
Number of Hedge Fund Holders: 3
Hong Kong-based GigaCloud Technology Inc. (NASDAQ:GCT) provides B2B ecommerce solutions. GigaCloud Technology Inc. (NASDAQ:GCT) has gained about 22% year to date through May 30. GigaCloud Technology Inc. (NASDAQ:GCT)’s PE ratio stands at 18.60, making it a relatively undervalued Hong Kong stock to buy. Out of the 943 hedge funds tracked by Insider Monkey, 3 hedge funds had stakes in GigaCloud Technology Inc. (NASDAQ:GCT) as of the end of the first quarter of 2023.
During the first quarter, GigaCloud Technology Inc. (NASDAQ:GCT)’s GAAP EPS came in at $0.39, beating estimates by $0.26. Revenue in the quarter jumped 13.7% year over year to $127.8 million, surpassing estimates by $3.55 million.
6. Tencent Music Entertainment Group (NYSE:TME)
Number of Hedge Fund Holders: 12
Music streaming company Tencent Music Entertainment Group (NYSE:TME) is owned by China-based tech giant Tencent. Both Tencent Music Entertainment Group (NYSE:TME) and Tencent Music are also listed on the Hong Kong stock exchange.
Tencent Music Entertainment Group (NYSE:TME) in May posted strong quarterly results after which several analysts upgraded the stock. Citi upgraded the stock to Buy from Neutral and also increased its price target to $9.70, underscoring the revenue growth of Tencent Music Entertainment Group (NYSE:TME).
A total of 12 hedge funds tracked by Insider Monkey had stakes in Tencent Music Entertainment Group (NYSE:TME) as of the end of the first quarter. The most notable hedge fund stakeholder of Tencent Music Entertainment Group (NYSE:TME) was John Overdeck and David Siegel’s Two Sigma Advisors which owns a $61 million stake in the company.
In addition to Alibaba Group Holding Limited (NYSE:BABA), HSBC Holdings plc. (NYSE:HSBC) and Baidu, Inc. (NASDAQ:BIDU), TME is a popular stock among elite hedge funds. Polen Global Emerging Markets Growth made the following comment about Tencent Music Entertainment Group (NYSE:TME) in its Q4 2022 investor letter:
“Tencent Music Entertainment Group (NYSE:TME), China’s equivalent to Spotify, almost doubled over the quarter after reporting third-quarter earnings with revenues and margins coming in better than expected. The company trades on very attractive valuations, and some of the mispricings we have discussed for a while have started to be realized by the broader market.”
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Disclosure: None. 10 Most Undervalued Hong Kong Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.