HEAD-TO-HEAD: First State versus Schroders

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Germaine Share, Morningstar

Introduction

Hong Kong has remains fragile due to six months of social unrest as well as the economic uncertainty caused by the US-China trade tensions.

The SAR has slipped into recession, with the economy contracting by 3.2% during the third quarter. It is expected that overall economic growth this year will be -1.3%, according to data from the government.

Year-to-date, Hong Kong’s stock market has also underperformed its regional peers, with the Hang Seng Index returning 7.85% versus the MSCI AC ex-Japan Index’ 12.64%.

Germaine Share, Hong Kong-based associate director for manager research at Morningstar, also attributes the market underperformance to central banks cutting interest rates.

“Hong Kong is usually seen as a yield market by investors given the prominence of [high dividend-paying] banks, such as HSBC, Hang Seng Bank and Bank of China (Hong Kong).

“Investors were bullish on these Hong Kong names last year, believing that they would be beneficiaries of potential interest rate hikes. But now, [interest rate policies] have reversed.”

Given the various factors affecting the Hong Kong market, there hasn’t been too much appetite for Hong Kong equities, she added.

However, investors may find that there is a value play among beaten-down Hong Kong stocks. Matthews Asia, for example, believes that there are opportunities in well-managed companies.

Even mainland investors have poured in around $20bn in Hong Kong’s stock market in the last six months because of cheap valuations, according to a Wall Street Journal report.

Against this background, FSA asked Share to compare two Hong Kong equity funds: the First State Hong Kong Growth Fund and the Schroders ISF Hong Kong Equity Fund.

Sources: Morningstar Direct, FE Fundinfo

*02 December 2016 – 04 December 2019

**03 December 2016 – 29 November 2019

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