Day and Calandra Look to Hong Kong

05/30/2003 12:00 am EST

Focus:

Adrian Day

Chairman and CEO, Adrian Day Asset Management

"A chart of the Hang Seng Index since the year 2000 looks every bit as dismal as America's S&P 500 Index," says Thom Calandra, editor of Stockwatch on CBS Marketwatch.com, as well as his own newsletter. "Both are down 30% since May 2000.  That's about to change. Asia's money managers are sitting on large amounts of cash."  Adrian Day is also a fan of HSBC, which is expanding its China and Hong Kong operations.

"Hong Kong has record high joblessness, plummeting real estate prices, soaring vacancy rates for office and residential rentals, and plunging tourism. Property gauges are forecasting even greater damage to Hong Kong's real estate market in the current quarter. Cathay Pacific, the airline, is furloughing some workers for four weeks. Hong Kong's currency, like that of China, is pegged to the US dollar. As the dollar falls to a four-year low against the euro, the world's investors are finding little reason to buy Hong Kong stocks. That should change soon. For those of us in North America, there really is only one way to invest in Hong Kong."

"That's through an exchange-traded fund. In this case, it's the $135 million Hong Kong Index Fund (EWH NYSE), from Barclay’s Global Investors iShares unit. The fund's 30 or so holdings more or less reflect the Hang Seng Index. The 7-year-old fund returned 56% in 1999, then fell 17% in 2000, 18% in 2001, and 19% last year. Its top holding, making up 15%, is real estate and communications conglomerate Hutchison Whampoa. So, next time you put your global investing cap on, take a look at Hong Kong. I think these $7.50 EWH shares will be worth $10 by year-end."

For those seeking individual Hong Kong-related stocks rather than a mutual fund Adrian Day, editor of GlobalAnalyst.com, recommends HSBC Holdings (HBC NYSE). He explains, "HSBC is now the biggest foreign bank in China, with significant growth potential. The stock has also moved up since the completion of the Household International acquisition. The transaction was certainly met with skepticism, but some of the concerns are being assuaged. As a sub-prime consumer lender, Household would appear to be the wrong sector at the wrong time. But on a micro level, HSBC acquired a broad asset base in the underrepresented US at a good price. It also adds greatly to the group’s objective of global balance. Despite a worsening Hong Kong environment, profit from the China operations jumped 31% last year. Our analysis is that HSBC has a solid record of making acquisitions at good prices. Household improves the bank’s already good earnings growth outlook, and with a rock-solid balance sheet, HSBC remains one of our long-term favorites, a clear member of our Global Nifty Fifty. The stock is up appreciably this month, so we would look to buy on weakness."

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