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Chartwell Capital: 2022 Outlook

Photo of Ronald Chan.

Ronald Chan, Chief Investment Officer and Co-Portfolio Manager at Chartwell Capital says:

“If you come to think about the outlook for 2022, I prescribe to a kind of Dogs of the Dow strategy, where I want to look at the more beaten down markets and start from there. And fortunately, or unfortunately, Hong Kong, being our home turf, and being down by 12% for the year is really the place to look for opportunities.”

Hong Kong offers interesting opportunities for investors seeking out laggards, and who wish to take a slightly contrarian view while still riding high on a momentum approach, says Ronald Chan, Founder and Chief Investment Officer of Chartwell Capital in his latest outlook on the local market into 2022.

“Hong Kong listed stocks, and some Chinese listed stocks have been non-performing in the year to date [1 December]. Just to give you some perspective, the Hang Seng Index in Hong Kong is down by over 12%. China’s CSI 300 index is down by over 7%. Whereas if you look at some Southeast Asian markets as well as Japan, they are doing quite well.”

“And if you want to look for exposure with growth, think about Hong Kong and Hong Kong listed names. Just look at the numbers,” he says.

Besides a relatively low P/E multiple, the average Hong Kong dividend yield is among the highest in the region, while the currency is pegged to the dollar. That gives a yield about 2x high than the S&P 500, Chan notes.

The Hang Seng is at a 10 year low in terms of its P/B ratio. If it returned to 1.2x it would represent a 20% return, while against the pre pandemic level, there is a possible 40% upside, he adds.

International investors need to look beyond the politics and noise, and factor in Hong Kong’s location and the opportunity this gives locally listed companies to integrate into the Greater Bay Area.

The GBA consists of nine cities on the Mainland plus Hong Kong and Macau, totalling an estimated GDP of $1.7trn and GDP per capital of $19,367 across a population of over 86 million people. GDP is, therefore, bigger than Canada and almost comparable with Italy. It is estimated to have grown by 4.4% in 2020.

“And so, part of the strategy for 2022 is to go local, regional, and focus on strong regional growth. That means understanding opportunities in the GBA.”

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