The HSI company stated that in the past few years, state-owned enterprises have significantly outperformed in the Hong Kong stock market. Under policies that focus on shareholder value, state-owned enterprises with attractive valuations have performed better than overall state-owned enterprises. The HSSCCSV index of state-owned enterprises in the Hong Kong stock market has risen by more than 26% since the beginning of the year, significantly outperforming the market.

State-owned enterprises outperform the market

Since November 2022, when the Chairman of the China Securities Regulatory Commission proposed to "explore the establishment of a valuation system with Chinese characteristics" ("MTG"), state-owned enterprises have become the focus of investment in the Hong Kong stock market. Supported by the MTG and other related policies, state-owned enterprises have clearly outperformed the market. Represented by the Hang Seng China State-Owned Enterprises Index ("HSCSOE"), state-owned enterprises supervised by the State Council State-owned Assets Supervision and Administration Commission or the Ministry of Finance have achieved a total return of 22% since the beginning of the year, outperforming the 5.4% increase represented by the Hang Seng Composite Index ("Hang Seng Index"), which represents the overall market.

The HSSCCSV has risen 26% in terms of total return since the beginning of the year.

It is worth noting that state-owned enterprises with attractive valuations have outperformed overall state-owned enterprise performance. In terms of total return, the HSSCCSV has risen by 26.3% since the beginning of the year, with increases of 60.6% over the past three years, outperforming the Hang Seng Index by 21 percentage points and 92.2 percentage points, respectively. The outstanding performance of the HSSCCSV is mainly due to the many favorable policies introduced in recent years. For example, the State Council State-owned Assets Supervision and Administration Commission announced this year that it will begin a comprehensive market capitalization management assessment of listed companies, quantitatively evaluating the market performance of state-owned holding listed companies, which is bullish for state-owned enterprise valuations.

Figure 1: The HSSCCSV significantly outperforms the market.

The HSSCCSV was launched in October 2023 and is retroactive to September 2019, using state-owned enterprises that meet the Hong Kong Stock Connect Requirements as a selection scope and capturing value factor premiums. This index screens value factors including (net value of stock price)/book value ratio (B/P), EBITDA/enterprise value, and profit yield, selects the top 40% of state-owned enterprise value scores, and forms a low-dividend yield and low-volatility investment portfolio.

The financial industry has the largest weighting in the HSSCCSV.

As of July 9, 2024, the dividend yield of the HSSCCSV reached 6 basis points, the P/E ratio was 5.4 times, and the three-year annualized volatility was 19.5%, compared to P/E ratio and three-year annualized volatility of 11.4 times and 25.7% for the Hang Seng Composite Index, respectively. In terms of industry distribution, the financial industry has the largest weight in the HSSCCSV, accounting for 34%, followed by real estate construction (12%) and telecommunications (11%).

Figure 2: Industry distribution of the HSSCCSV.

Edited by Jeffrey