February 2, 2021

Author: Tim Phillips

Hong Kong stocks buy

Amid the Covid-19 pandemic over the past 12 months, many businesses worldwide have suffered. However, it’s widely-recognised that Asia has handled the pandemic relatively well.

Admittedly, China’s economy took a huge hit – most notably in the first quarter of 2020. Yet the country miraculously managed to post positive GDP growth for the whole of 2020.

For many investors, many of the Hong Kong stock market’s winners have been found in the technology sector operating in China.

Yet, there are some non-tech stocks in Hong Kong that I believe will continue to do well over the long term.

And even though there are some truly awful stocks in the Hang Seng Index – such as Chinese state-owned banks and telcos as well as Hong Kong property developers – there are also many great companies outside the technology sector.

Here are two Hong Kong-listed stocks, that are also constituent stocks of the Hang Seng Index, that I think investors can buy and hold in 2021 and beyond.

1. AIA Group

AIA Group Ltd (SEHK: 1299) is a pan-Asian life and health insurance provider that has been operating in Asia for over 100 years.

The insurer has a presence in 18 Asia-Pacific markets and is a pure-play Asian insurance stock for those of us wanting exposure to the region’s rising incomes and expanding middle class.

Even though growth took a hit in the first half of 2020, with value of new business (VONB) down 37% year-on-year, AIA still managed to post an operating profit of US$2.9 billion, which was up 5% year-on-year.

The company is also a reliable dividend payer and increased its total dividend per share (DPS) in 2019 by 11% year-on-year to HK$1.266.

For the eight years from 2011-2019, AIA’s dividend actually increased at a compound annual growth rate (CAGR) of a robust 18.3%.

Although the insurer was hard-hit by the closure of Hong Kong’s borders amid the Covid-19 pandemic (many Chinese tourists visit the city to buy US dollar-denominated insurance plans), its burgeoning China business should more than offset this over the long term.

It’s also not that well-known that AIA is the only wholly foreign-owned life insurance company that is incorporated in mainland China.

That gives AIA the flexibility to operate independently without a joint venture (JV) partner and the insurance giant recently got regulatory approval (in November 2020) to start operations in Sichaun.

Given the insurer currently only has operations in Shanghai, Beijing, Guangdong, Shenzhen, Jiangsu, Tianjin and Hebei, the opportunity to expand to the rest of China over the next decade remains huge.

Additionally, AIA also appointed former Ping An Insurance Group Co of China Ltd (SEHK: 2318) co-CEO Lee Yuan Siong as its own new CEO – having formally started his position on 1 June. This is a positive in my view.

Ping An’s reputation for leveraging technology and Mr. Lee’s experience of building out Ping An’s formidable China business will be invaluable as AIA starts to ramp up its presence in China.

2. Techtronic Industries

The second Hong Kong stock for investors is none other than power tools manufacturer Techtronic Industries Co Ltd (SEHK: 669).

The company has been a big supplier of its branded power tools and home care products to the likes of big-box retailers such as US-based giant Home Depot (NYSE: HD).

Some of the best-known brands under the Techtronic umbrella include Ryobi, Milwaukee, and Homelite.

Even amid the trade war between the US and China (and a global pandemic), Techtronic managed to post some astounding numbers in the first half of 2020.

In the first six months of last year, Techtronic saw a 12.8% year-on-year increase in sales to US$4.2 billion while its net profit also climbed double digits – rising 16.3% year-on-year gain to US$332 million.

Techtronic also managed to hike its first-half dividend by an impressive 17.8% year-on-year to HK$0.53 per share.

The reason for the success? A lot of the company’s products have found their way into the hands of DIYers looking to spruce up their homes amid a pandemic-induced lockdown.

That has meant that more cordless power tools (which Techtronic specialises in) have flown off the shelves at the likes of Home Depot and elsewhere.

With the suburbanisation trend also taking hold, as people are increasingly moving out of cities because of the pandemic, demand for its tools should remain robust over the long term.

Techtronic also has a diversified manufacturing and R&D base that is split across the globe, with the firm having recently opened an innovation centre in South Carolina in the US.

Buying the winners

These two companies will most likely continue to be extremely profitable and market leaders in a post-Covid-19 world.

For longer-term investors, looking outside the technology sector in Asia can also reward those who want to own best-of-breed companies.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of AIA Group Ltd.

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