China SOEs and HK Listed Companies Give Good Return for Investors

While the world had been griped by fear of a market sell down arising to the unwinding of the Japanese Yen Carry trade, one market has stood resilient. That is the Hong Kong market and in particular companies who are of the China National Company ("SOE" status).

They are equivalent to the Temasek Linked companies we know of in Singapore.

Stable Earnings and High Dividends

While many express distrust at these group of companies, the fact is year to date they have delivered an impressive double digit returns for shareholders on top of their above 6% dividends.

Benefits

Firstly, many of these China SOEs are listed in the Hong Kong Market and can be bought by us investors with no legal implications as of now. 

Below is a snapshot of their current yield after dividend taxes; they are providing 7-8% dividend yield.

I am not kidding by the amount of dividends they provide and these are the largest companies in the world as well as proxy to the health of China consumers. 

In this list, there is ICBC: the largest bank in China/the world and Sinopec- the national oil refiner and proxy to China's consumer demands in lieu of its oil refining capacity and concentration to China.

All give higher dividends than even Singapore REITs.

In the area of earnings, these SOEs are not making losses and have continued to be profitable. But due to poor sentiments, the market has priced them to be single digit P/E companies with a high dividend yield. 

Comparing ICBC vs Singapore's DBS, ICBC is only valued at a quarter of DBS's current valuation. If i had to choose, I would buy ICBC instead of DBS anytime.

HKD is Cheap Now

Due to the Hong Kong Dollar (HKD) Peg to USD, HKD is at an all time low relative to Sing Dollar, investors can use the strong Sing dollar now to buy the cheap assets of these SOE to earn high dividend.

The benefit of owning China's SOE are many folds. In addition, there are top notch private run companies such as LINK REIT and Ping An Insurance. LINK REIT is one of the largest REIT in Asia, have presence of shopping malls everywhere including Singapore and is one of the longest running REIT with the strongest balance sheet. 

Unfortunately due to the negative sentiments people have to China, on a whole Hong Kong stocks have been beaten down to the troughs of negativeness. My judgement is that this is an opportune time to invest in these companies. 

Recommendation wise, below are a few companies an individual can get good returns owning a stake:

Real Estate: Link REIT, 00823.HK (8% Dividend and Increasing Dividend)

Oil Refining and Production: Petrochina, 00857.HK & Sinopec/China Petroleum, 00386.HK [7% dividend yielders and the largest refining and production capacity even in the Worlds)

Banking: ICBC, 01398.HK & Ping An Insurance, 02318.HK (7% Dividend Yielder and Largest Bank and Insurer)

Telecom: China Mobile, 00941.HK (6% dividend yielder and growing, entered the cloud services segment of China and endorsed as the Government No 2 backed company behind Huawei, likely will be the third largest player after Huawei and Alibaba)