woensdag 30 juli 2014

The Case for Hong Kong Stocks

This week, Marc Faber came in with a new recommendation. He is advising investors to invest in Hong Kong stocks as we can see in this interview with CNBC. The reason for that is because we see a technical breakout on the upside for China. As a result also the Hong Kong stock market is up. See chart of the Hang Seng Index below from Google Finance.

Now why is China doing so well? I have already hinted on that in this article. Basically, we see many signs of a recovery in China. First off, the PMI had surged to 52 after several months if not years of decline. A surging PMI indicates that GDP growth is accelerating. And the evidence of an accelerated growth in GDP can also be seen in the Chinese power consumption numbers (chart below created by Correlation Economics). As our correlation shows, the rising power consumption numbers go hand in hand with GDP growth.

Next on, this China GDP growth translates itself into a positive development in the commodities market. The zinc and copper prices for example have bottomed out just recently. Also China and Hong Kong real estate have been bottoming out. I have been recommending Tai Cheung Holdings here, which has seen a nice 10% return.

To put some more evidence on display, we can see that the CRB Commodity index has seen a surge since the start of 2014, indicating a recovery in commodity prices. See chart below from Bloomberg.

And last but certainly not least we have a very important development in the currency market. Not only has the Chinese yuan stopped dropping against the U.S. dollar. The Hong Kong dollar is said to finally de-peg from the U.S. dollar, which will boost Hong Kong stocks even more.

If U.S. investors want to buy Hong Kong stocks, I recommend Hang Seng Bank (HSNGY), because this bank is based in Hong Kong and is highly correlated to the Hang Seng Index. And while you wait for the rise, you get to be paid a handsome dividend of 4%.

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