Hong Kong has a haven from trade-war jolts

The plunge in Hong Kong stocks triggered by the renewed US-China trade conflict was the latest jolt for a market that’s veered wildly between bear and bull territory in the past two years. Investors seeking a haven from the volatility have few places to turn: one may be stocks tied to the Greater Bay Area.
China’s plan to knit together nine mainland cities with Hong Kong and Macau into a cohesive economic powerhouse has generated optimism and suspicion. Critics have attacked the project as hot air. Worse, some have seen it as simply another tactic by the Chinese government to undermine the greater political freedom enjoyed by former colonies.
The Greater Bay Area is more than a renaming exercise. The region is already one of the fastest-growing in China, with 69 million people and combined GDP of about $1.5 trillion. At current projected growth rates, it will soon surpass the New York metro area in economic size. By geography, it’s three times the size of the San Francisco Bay Area.
The project envisages using “smart-city” technology to
keep businesses and citizens connected, and to meet international demand for manufacturing, trade, tourism, and other services.
The Chinese government is enacting measures to support the area’s growth. The Ministry of Finance recently announced new tax incentives and subsidies to entice foreign professionals to work in the tech sector. Supporters believe that, in addition to stimulating the Chinese economy overall, the Greater Bay Area will be especially beneficial to Hong Kong millennials who have had difficulty finding affordable housing and high-paying jobs in the city.
The level of official backing for the Greater Bay Area is offering opportunities to companies and investors. For example, real estate developers such as Logan Property Holdings Co. and Times China Holdings Ltd. focus primarily on development and investment in the region.
Logan has a market cap of more than $8 billion and generated $6.7 billion of revenue in 2018. Sales are forecast to jump 37% this year and a further 27% in 2020, according to consensus estimates compiled by Bloomberg. With an estimated price-book ratio of 1.7 for fiscal 2019 and a price-earnings multiple of less than 6, Logan’s
valuation is undemanding.
Shenzhen International Holdings Ltd. is another stock worthy of consideration. The conglomerate focuses on construction, logistics, and toll roads in the bay area. At a prospective price-book ratio of 1.1 and a multiple to forecast 2019 earnings of 9.2, the company offers more stable growth, with earnings estimated to grow about 10% in the next two years. The shares have gained less than 10 percent this year.
Time will tell whether the Greater Bay Area initiative is more symbolic than pragmatic. Either way, companies exposed to the region are already seeing a positive impact on their
businesses.

—Bloomberg

Ronald W. Chan is the founder and CIO of Chartwell Capital in Hong Kong. He is the author of “The Value Investors” and “Behind the Berkshire Hathaway Curtain.”