Trade Update: Covering Hong Kong

Conclusion: We continue have a fundamentally negative outlook for the slope of Asian economic growth over the intermediate-term TREND and trading Hong Kong with a bearish bias around our quantitative levels remains our favorite way to play that view on the equity front.

 

Earlier this afternoon, Keith covered our short position in Hong Kong equities in our Virtual Portfolio for a decent gain vs. our cost basis. We continue have a fundamentally negative outlook for the slope of Asian economic growth over the intermediate-term TREND and trading Hong Kong with a bearish bias around our quantitative levels remains our favorite way to play that view on the equity front.

 

As mentioned in prior notes, we specifically like Hong Kong on the short side (relative to other alternatives) because of the following domestic factors/catalysts: 

  1. Pronounced domestic stagflation will continue to compress corporate earnings growth over the intermediate term;
  2. An inflecting property market will weigh on credit quality across the banking sector; and
  3. Slowing global growth will weigh on Hong Kong economic growth, which is among the world’s top two trade-oriented economies.  

Trade Update: Covering Hong Kong - 2

 

Trade Update: Covering Hong Kong - 3

 

Trade Update: Covering Hong Kong - 4

 

We’ve been bearish on Hong Kong equities in print since May 24th and, since then, that research/risk management has produced a substantial amount of alpha (Hang Seng Index down -19.7% vs. a median decline of only -10.5% across Asia’s other benchmark equity indices).

 

For those of you less familiar with our thoughts here, we encourage you to review our research on this idea and the associated thematic analyses: 

Lastly, our proprietary quantitative risk management levels are included in the chart below.

 

Darius Dale

Analyst

 

Trade Update: Covering Hong Kong - 5


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