The Hong Kong stock market closed out June with a gain of 6.4% as the Hang Seng Index was powered higher by the likes of “new economy” stocks such as Tencent Holdings Ltd (SEHK:700).
Even so, so far in 2020 the Hang Seng Index is still in bear market territory having recorded a 13% decline year-to-date.
Does that mean investors should give up on the stock market? I don’t think so. As I’ve outlined before, when investing in Hong Kong and China stocks, it pays off to be selective in what you put your money into.
So, for investors looking to see what’s attractive in July, here are four stocks smart investors should be picking up as we enter the second half of 2020.
1. Hong Kong Exchanges and Clearing
Hong Kong Exchanges and Clearing Limited (SEHK: 388) is the sole stock exchange operator and clearing house in Hong Kong.
Shares have so far risen over 50% so far in 2020 but the underlying factors driving this rally are just starting to play out.
The exchange operator is benefitting hugely from the slew of US-listed Chinese companies that are coming to the Hong Kong Exchange to raise money via secondary listings.
Already in 2020, JD.com Inc (NASDAQ: JD) (SEHK: 9618) and NetEase Inc (NASDAQ: NTES) (SEHK: 9999) have listed their shares in the city.
This trend is likely to continue, with large names such as Yum China Holding Inc (NYSE: YUMC) apparently in talks to raise money in Hong Kong via a secondary offering.
The fast-food chain operator, which owns the brands KFC, Pizza Hut and Taco Bell in China, is looking to raise US$2 billion in a Hong Kong listing, according to a Bloomberg report in June.
E-commerce and cloud computing giant Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) is another one investors should watch in July.
The firm’s Hong Kong shares are now firmly established in the market after listing in the city in late 2019.
I believe it’s also only a matter of time before Alibaba’s Hong Kong shares get added to the Hang Seng Index and Stock Connect links with mainland China. Given its huge size, it seems inevitable.
Furthermore, the move away from its US-listed shares by investors towards its Hong Kong shares (which won’t be at risk of geopolitics) means that over the long run its Hong Kong-listed shares should do well.
3. Meituan Dianping
Meituan Dianping (SEHK: 3690), the fast-rising tech superstar in China, has had a sensational 2020. Yet I think there’s still room to run for this stock.
The company is nimbly adapting to the Covid-19 pandemic in China by offering users new services such as same-day grocery delivery.
Although it’s barely profitable, having taken a huge hit on its profitable travel-related business, and its valuation is at an eye-watering price-to-earnings (PE) ratio of 488x, the company is still set to win longer term in the “new normal” as China exits its lockdown.
4. OneConnect Financial Technology
Finally, we have OneConnect Financial Technology Co Ltd (NYSE: OCFT), the Ping An-backed fintech firm.
As China exits the lockdown and banks and financial services look to increasingly digitise their operations, OneConnect will be a big winner.
The provider of financial services technology solutions has a massive captive market in China. Large national and regional banks in the country are infamously slow at adapting to the digital landscape.
With a fast-growing company such as OneConnect, investors have the opportunity to tap into this long-term growth story at an early stage.