It could now be too late for your typical mainstream blue chip Hong Kong equity investment portfolio to catch up in the coming months.
Out of a universe of 290 international indices followed by Bloomberg, on the year-to-date the Hang Seng Index took a fairly respectable 37th place with a return of 13.08 per cent.
Yet the American Stock Exchange (Amex) Hong Kong 30 index reported a return of 13.3 per cent, to make 33rd place.
The performance of these indices have been tweaked by the inclusion of Chinese Estates. This property developer and investment holding company is up 42.57 per cent on the year-to-date and 38.15 per cent on 12 months. The other stock included in the Amex series, but not in the Hang Seng Index, is Tai Cheung, another property investor. This conservatively managed company is, in relative terms to other racers in the mid-cap sector, up 17.7 per cent on the year-to-date and five per cent over 12 months.
In 29th place, out of the top 290 indices, is the Hong Kong Stock Exchange All Ordinaries Index. This index, as its name suggests, has a far greater coverage of the listed companies at the exchange than the Hang Seng Index. It has returned, on the year-to-date, 14.16 per cent. The out-performance of this index over the period reflects the much broader rally that occurred in Hong Kong stocks during 1996 than was previously the case.
In previous rallies, the index lagged far behind the apparently more agile Hang Seng Index.
The Hang Seng MidCap Index is, in relative terms, streaking ahead. On the year-to-date it is up 17.04 per cent and makes 21st place in the Bloomberg top 290. For the record, the Hang Seng China Enterprises Index has turned from dog investment to star-spangled performer with a rise on the year-to-date of 23.27 per cent.
This places it in 12th place out of the Bloomberg universe of 290 stocks. After a terrible year in 1995, when the index fell to a historic low of 684.85, on November 16, the index has bounced back. The selling came on the back of general uncertainty towards the second. The bounce back to 933, at the close on Friday, takes the index back to the 12 month moving average of 939.7.
The powerful performance in the Hang Seng MidCap Index comes on the back of some truly amazing individual stock returns in the sector (see table). On 12 months some of these index constituents have more than doubled in price.
The key question on the minds of some fund managers remains: Is this kind of performance sustainable? Investors do not expect these stocks to keep doubling in price. But a more steady period of sustained returns can be achieved, barring China invading Taiwan.
Blue chips have seen their year-to-date performance stymied because of the large number of cash calls seen in the sector since November.
Investors looking for exposure to China have tended to favour Hong Kong mid-caps instead of mainland-listed or managed companies. The upturn in the mainland economy on the back of monetary easing there is expected to benefit these mid-cappers.
Many of the mid-cappers have, over the past three to five years, built up some credible track records in sales and profit growth. Plays on an uplift in the domestic retail sectors are in the mid-cap index. Similarly smaller to medium-sized banks, a favourite of investors in 1995 and 1996, are also represented in this index.
With increased efficiency at the blue-chip, investment-level brokerages have been attracted to mid-caps where they can more effectively add value with quality research. It is probably tempting fate to say it, as there could always be a disappointment around the corner, but the rise of the mid-caps also reflects a maturing of the Hong Kong stock market with a broadening of liquidity in the market place.
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