Asia has been the best performing region globally this year as China 2.0 kicked in as a theme with China (at the MSCI level) being the best performing market and tech being the best performing sector. As Mark Tinker, responsable de AXA IM Framlington Equities Asia, comments: “In Hong Kong the story has all been about Tencent, while in Korea it has been about Samsung.”
In fact, in Hong Kong in particular the impact of Tencent has been extra-ordinary as the largest stock in the market with a current weighting of almost 12% has effectively doubled over the last 12 months, while the second biggest, HSBC, is up a mere 17% – albeit with a significant dividend to yield a total return of 23%. In South Korea, where Samsung Electronics is more than 20% of the index, it has risen by 83%. Probably not since Apple became the biggest stock in the US market back in 2011/2 and then doubled has the index effect had such a big impact on so many active institutional investors.
“Of course the argument threatens to become circular” says Tinker. Therefore, he wonders if Tencent or Samsung are up so much because people are buying the index or vice versa?
For Tencent there may well be some influence from the fact that mainland Chinese investors can buy it through the Southbound Stock Connect, which continues to expand its influence on Hong Kong markets. Tencent is affecting the real economy in China as well as here in Hong Kong.
As previously noted by Will Chuang in Hong Kong, “it is not only possible but actually significantly easier to spend a weekend in Shanghai without using either cash or a credit card, simply using WeChat pay by Tencent. Tinker adds that “all you have to do is click on your phone to call up a quick response (QR) code that the merchant scans and you are done.”
It is now said that you can always spot the tourists in Shanghai as they are the ones using credit cards, or if they are really old fashioned, cash.The fact that the largest note in China is RMB100, which is the equivalent of around EUR15 is probably a factor in using WePay to replace cash, but even here in Hong Kong it is increasingly being used.
Tencent is mainly Chinese but it is also having something of a wealth effect here in Hong Kong as the number of people trading the stock and several of the connected spin-offs that have recently IPO’d here are clearly celebrating their ‘success’ in the bars and restaurants in Central. The expert of AXA IM in Asia explains:
The retail offering of Tencent spin-off China Literature for example was 625 times oversubscribed and effectively doubled on opening, having caused a huge spike in interbank rates as money was locked up in anticipation.
Former Hong Kong Chief Executive Chun-ying Leung used to refer to Hong Kong as “where the rest of the country meets the rest of the world” and as well as offering an outbound conduit for mainland investors through its H share listing, the company itself is, like a number of others, investing overseas, most notably when it picked up around 12% of SNAP as that particular stock continued to slide. Many have noticed the contrast between the performance of US tech IPOs and their Chinese equivalents.