Trump's merits over the past three years have been torched. If the epidemic reaches its peak ahead of time, can the window before the election turn the tide?

HSBC doesn't ring the Christmas bell, but can it be replaced by an alternative?

$HSBC Holdings PLC (00005.HK) $It is the financial mainstay of Hong Kong stocks. It has maintained a long and stable dividend payout for more than 20 years since the restructuring in the 1990s, and is welcomed by investors who have a demand for a stable income. But it was recently asked by UK regulators to cancel the fourth dividend in 2019, cancel the dividend in 2020 and suspend share buybacks.

The cancellation of the dividend occurred suddenly and meant that the 19-year dividend was only $0.3, and the dividend level fell back below the time of the "Century Rights issue" in 2009. Although HSBC's main business is in Hong Kong, it has to comply with the requirements of the British government because it is headquartered in the UK. The suspension of the dividend has caused great dissatisfaction among some major shareholders and retail investors in Hong Kong.

Prior to this, HSBC shares fell back to a range of more than HK $40, and for the performance-to-price ratio of up to 9% dividend, we found that the proportion of Hong Kong shares held for a long time increased to 8.3% from 7.6%. However, as HSBC has lost its dividend aura, we have found that Hong Kong's local capital has also changed codes to other leading Hong Kong banks and utilities with high dividends, such as Hang Seng Bank, BOC Hong Kong (Holdings) Limited, CLP Holdings Limited and Li Ka-shing family companies.

The share prices of these high dividend candidates have all risen significantly recently, but most of these targets are local business in Hong Kong (82%). From last year's social events in Hong Kong, these enterprises have also been greatly affected by the impact of the current epidemic.

When we examine the constituent stocks of the Hang Seng Hong Kong 35 Index with dividend yields of more than 3 per cent (plus HKT Trust and HKT and HK Electric Investments and HK Electric Investments), we find that the median net profit in 19 years has fallen by 22 per cent year on year, and the median income in 19 years has increased by 0 compared with the same period last year. The median operating cash flow / long-term and short-term liabilities is only 22%. Among them, the financial situation of PCCW, HKT Trust and HKT, Yue Yuen, New World Development, CK Hutchison and HK Electric Investments and HK Electric Investments is relatively poor. In the midst of internal and external difficulties, it remains to be seen whether they will reduce their dividends in order to protect themselves.

Does the high dividend strategy still work? More optimistic about the new economic sector of Hong Kong stocks.

For Hong Kong locals, HSBC has a prestigious historical status, and many people will be proud to work in it. HSBC is the first note-issuing bank for the Hong Kong dollar, so many people are both customers and shareholders. The investment strategy of "Christmas clock, Buy HSBC" was popular as early as 30 years ago, and since most of the year-end bonuses were paid out at Christmas, it became an inevitable choice for many people to invest in HSBC, which has a stable stock price and stable dividend.

HSBC has paid more than 50% of its dividends since 2000, with dividends exceeding $0.4 a share in 2009 and 2010. However, after the opening of the Hong Kong stock market in recent years, the game between China and foreign countries in Hong Kong stocks has become more obvious, and there are many high growth targets in the mainland to choose from, including the mobile phone industry chain, 5G and consumption. In the process of depicting the "A-share transformation of Hong Kong stocks" in the Hong Kong market, Hong Kong local stocks are gradually marginalized.

We are more optimistic about the companies with "the same share, different rights" and "secondary listing", including the new economic targets represented by BABA, Meituan and XIAOMI. The results of the consultation on whether they can be included in the Hang Seng Index will be released in May. HSBC, which currently occupies the top three weights of the Hang Seng Index, may face a "downgrade right" of more than 9%. Compared with currency control's total market capitalization of HK $830 billion, Meituan reached HK $560 billion and BABA's Hong Kong shares have a market capitalization of about HK $900 billion.

Trump has worked hard for three years, and if the epidemic in the United States reaches its peak ahead of time, seize the window before the election.

At present, the Hang Seng Index has gathered a large number of local enterprises in Hong Kong, accounting for 46% of the weight, resulting in homogenization and outperforming the world's major indices last year, while Hong Kong's traditional high dividend strategy and the Hang Seng Hong Kong 35 Index have even outperformed the Hang Seng Index this year.

Therefore, we believe that when the current overseas epidemic is still fluctuating, mainland assets show relative resilience, and the high dividend undervaluation of the financial and real estate sector with domestic countercyclical policy adjustment as the main line can be used as the value allocation of long-term funds. With the further recovery of market sentiment, we think that semiconductors, consumer electronics, 5G industry chain and other high-Beta technology sectors can also be concerned.

With regard to the overseas epidemic situation, the current overseas anti-epidemic campaign led by the United States may reach its peak ahead of time. We originally thought that the peak in the United States would be in late April and early May, but due to the government's change in the use of masks, the peak of the epidemic is expected to be advanced to mid-April. Recently, there has also been a positive reaction in the global market. we think that market sentiment may have stabilized from the double dip, but the shutdown caused by the epidemic is pushing the economy into recession, which has not yet been fully taken into account by the market.

In the next quarterly report, we believe there will be a large-scale expected adjustment. Of course, this year coincides with the US election, and Trump's re-election depends largely on the performance of the stock market. Trump's stock market gains over the past three years have basically gone up in flames, and we think the general election between now and early November will be a key window for him to turn the tide.

In spite of this, we think that although we can grasp the layout time window, we still recommend careful defense. Pay attention to cloud computing, consumer and e-commerce plate leaders with low or positive correlation with the epidemic, including Microsoft Corp, Intel, NVIDIA Corp, Walmart Inc, Amazon.Com Inc and so on. On the contrary, we still recommend avoiding offline entertainment, tourism and optional consumption related to the epidemic.