Amid Chinese Regulatory crackdowns, These are the Hong Kong Stocks to Watch

31 Aug 2021

Major Hong Kong listed stocks have been buffeted in recent months over an onslaught of new regulations announced by the Chinese central government. The restrictions kicked off in July, when Chinese private tuition companies covering the national school curriculum were ordered to go non-profit, effectively bringing the $100 billion industry to its knees.

Within a week, the Hang Seng Index fell 9% to 25,086 on July 27, nearly 19.5% below the 52-week peak of 31,183 in February. The decline was largely attributed to the selloff among the technology, private education and healthcare stocks.

The index has since rallied over the last few days – recovering from July’s lows – but the market is bracing for further tightening. Here’s what is happening in the Hong Kong stock market and what investors like you need to look at next.

Tightened regulations on competition and “spiritual opium”

The restrictions on private education companies was just a start. Technology stocks were hit next with antitrust laws and fines. Tencent, in particular, was fined and forced to give up their exclusive streaming rights. To make matters worse, gaming companies were threatened with tighter regulation on online games – which had been dubbed “spiritual opium”.

Food delivery company, Meituan Dianping, was faced with regulations to ensure the welfare of delivery workers, while insurance companies – like Ping An Insurance – and infant milk producers were ordered to curb unfair marketing and pricing practices. Ride hailing app Didi Chuxing was ordered to improve its data protections and enhance user privacy.

To be sure, market watchers remain divided on the intention of the new regulations. Some believe the moves will help recalibrate the market to ensure fair business practices, more equitable distribution of wealth, improve the health of the general population, while fostering greater innovation and competition.

On the other hand, the Chinese central government appears to be sending the message that no Chinese company – no matter how big they become – are above the law. Indeed, the Chinese government has shown that it has the wherewithal to rein in their technology companies in a manner that evades other western governments.

What’s next for investors?

In light of the continuing restrictions, investors need to re-evaluate the Hong Kong stocks they are invested in, and the direction these entities will be taking in light of the new regulations.

If the Chinese state-run paper Economic Daily is to be believed, the new rules are in place to “maintain fair and reasonable market competition” and are not targeted at specific industries or companies.

The Economic Daily commentary also added that China remains committed to “develop the digital economy” and reassured investors that the “rapid growth of China’s digital economy will not change, and China will continue to lead the global digital economy.”

That may signal a potential growth for China’s Big Tech in the medium to long term horizon, though it does not negate the volatility to be expected in the near term.

Many of the industries that have been badly hit in this round of regulatory crackdowns are seeing a kneejerk reaction to the new rules, but still offer fundamentally sound business operations. These include the information technology, payment solutions, online delivery, e-commerce, and healthcare sectors. In fact, some investors have already started to see new investment opportunities among certain oversold stocks.

Here are some stocks to keep on your watchlist.

CompanyMain BusinessesPrice Change YTD
Alibaba Group HoldingsE-commerce, Payment Solutions, Logistics-28.73%
JD.com IncE-commerce-13.68%
Kuaishou TechnologyVideo platform-76.53%
Meituan DianpingOnline delivery-22.49%
NetEase Inc HKIT, Gaming, Ecommerce-4.77%
Tencent HoldingsIT, Gaming, Payment Solutions-17.6%
Wuxi Biologics Cayman IncPharmaceutical13.28%
Xiaomi CorpConsumer electronics-30.64%

Investing in a volatile market

In such volatile markets, investors can look out for investment products that allow them to trade in both bull and bear markets, like Share CFDs. All 8 Hong Kong stocks listed above – and 71 other Hong Kong stocks – are currently available to trade as share CFDs through the Phillip MetaTrader 5 platform (MT5).

The Phillip MT5 platform is a multi-asset trading platform by MetaQuotes Software, which allows you to trade a variety of different asset classes on one platform, such as Forex, Gold, as well as Crude Oil and Indices CFDs.

It is also integrated with a comprehensive range of technical charting tools, including the popular Trading Central indicators, and Autochartist.

Phillip Futures is currently offering a zero commission promotion for MT5 customers who wish to trade Hong Kong, Singapore, and US Share CFDs. There are no platform fees or minimum fees payable, and investors can start trading shares such as Xiaomi and Tencent from as low as one share CFD.

Start with a free MT5 demo account here, to try out the charts and the platform for yourself and experience how Phillip MT5 can help to support your trading. To open your Phillip Futures account, click here.


Shares CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allows traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    CFDs typically have flexible and smaller contract sizes. This means that traders will be able to enter into a CFD contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFDs allow traders to perpetually hold the position(s). CFDs are cash settled, no need to worry about the delivery of the underlying asset.

Trade US, HK, SG Shares CFDs at zero commission on Phillip MetaTrader 5, a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Download Trading Central’s Market Buzz for updates on more topics.

What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

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