• Hong Kong Singapore Depository Receipts provide a strategic and efficient means for investors to access Hong Kong’s leading companies. They potentially offer transaction cost savings, convenience, and the ability to manage investments on a single platform, making them an attractive option for diversifying portfolios.
• Five top quintile Hang Seng Index stocks by weight—Tencent, Alibaba, Bank of China, HSBC, and BYD—are now tradable on SGX via HK SDRs, representing key sectors like Information Technology, Financials, and Consumer Discretionary, and offering a microcosm of the Index, with varied China exposure.
• This brings the number of SDRs listed on SGX to 13, with the existing eight Thai SDRs, covering over 40% of the SET 50 index across eight sectors. Tencent, Alibaba also rank among the five largest weights of the Lion-OCBC Securities Hang Seng Tech ETF which is the most traded ETF listed for trading on SGX.
• On 12 Nov, SGX Academy and Beansprout will host investors in a webinar that provides an educational overview of the new additions to the SDR product suite. The session will commence at 7:30pm and will also delve into the China Technology Sector. Click here for more information.  

Hong Kong’s GDP Growth Driven by Exports and Investment

Adolph Leung, Hong Kong’s Government Economist, expects continued economic growth into 2025, driven by strong exports, local economic expansion, and government measures, with GDP growth of 3.3% in 2Q24 and an anticipated 3.1% in 3Q24, despite challenges in retail sales and industrial production. The Hang Seng Index, with a 1-year rolling correlation of 0.6 to the CSI 300 Index, has achieved a total return of 27% in HKD (28% in SGD) in the 2024 year through to 29 October. The correlation parallels the multiple heavyweights in the Hong Kong stock market that report majority revenue to China, such as Tencent Holdings, Bank of China, and BYD. Balancing the cautiously optimistic outlook, uncertainties such as geopolitical tensions, the global economic outlook, and financial market volatility may pose risks, while changes in consumption patterns and a strong Hong Kong dollar could present additional challenges.

Five stocks that rank among the top quintile by constituent weight in the Hang Seng Index include Tencent Holdings, Alibaba Group Holding, Bank of China, HSBC Holdings PLC, and BYD. Together the five companies provide a microcosm of the Information Technology, Financials and Consumer Discretionary focus of the Hang Seng Index.  All five stocks are now available for trading on Singapore Exchange (SGX) through Hong Kong Singapore Depository Receipts (HK SDRs). 

Access Hong Kong’s Market Efficiently with HK SDRs on SGX

HK SDRs offer a unique investment opportunity for investors looking to diversify their portfolios with exposure to Hong Kong’s leading listed companies. HK SDRs are financial instruments traded on SGX that represent beneficial interest in shares of Hong Kong-listed companies. They provide a convenient and cost-effective way for investors to gain exposure to Hong Kong stocks without the need to directly trade on the Hong Kong Stock Exchange (HKEX):

• Firstly, they provide greater flexibility in market access, allowing investors to tap into Hong Kong’s mega-cap companies with bite-sized investment amounts ranging 2% to 15% of the underlying shares, and trading ahead and after Hong Kong market hours during the 9-930am and 4-5pm windows respectively.
• Secondly, as cost-efficient, they may incur lower brokerage fees compared to direct overseas trading, no foreign exchange fees since transactions are settled in SGD, and no custody charges for direct Central Depository (CDP) accounts.
• Lastly, they are highly convenient as trades are conducted and settled in SGD during SGX trading hours, dividends are paid in SGD, and investments are custodised with CDP, making it easier to manage alongside other SGX holdings. 
   

Exploring Market Leaders: Tencent, Alibaba, HSBC, BYD, and Bank of China

SDRs can help investors explore and engage in offshore markets, including Thailand and Hong Kong. These products provide access to key sectors, insight into market dynamics and facilitate investment opportunities with lower costs and greater convenience. Additionally, investors can gain more insights into the associated risks of these products here.

The five new HK SDRs maintain varied beta coefficients and minimum trading sizes:

• Tencent Holdings (HTCD) SDR to Underlying ratio is 10:1, which means 10 Tencent SDRs provide the equivalent price exposure to 1 share of Tencent, listed on HKEX.  Tencent Holdings dominates China’s social media with WeChat and popular mobile games, capturing 90% of the population. In FY23, net profit surged 36% due to increased user engagement and high-margin revenue from video games and advertising. The listed stock’s market capitalisation stands at ~S$665 billion, and maintained a price of S$7.34 per SDR on 30 September 2024. With a Price-to-Earnings (P/E) ratio of 24x, for the year through to 25 Oct, the stock maintained a 0.95 beta coefficient to the Hang Seng Index.
• Alibaba Group Holding (HBBD) SDR to Underlying ratio is 5:1. This is China’s largest e-commerce platform, with major cloud computing and international digital commerce operations. Taobao and Tmall have over 800 million monthly users and a 42% market share. Alibaba Cloud holds 37% of China’s cloud market. In FY24, revenue grew significantly, with international digital commerce up 46%. The listed stock’s market capitalisation stands at ~S$310 billion, and maintained a price of S$3.63 per SDR on 30 September 2024. With a P/E ratio of 13x, for the year through to 25 Oct, the stock maintained a 1.06 beta coefficient to the Hang Seng Index.  
• Bank of China (HBND) SDR to Underlying ratio is 1:1. Bank of China is a state-owned commercial bank with a diversified portfolio to mitigate risks. The bank’s net interest income is primarily derived from China, supporting the country’s real economy through loans and customer deposits. In FY23, Bank of China’s net profit margins remained resilient at 37%, with geographical diversification helping to offset risks. The listed stock’s market capitalisation stands at ~S$245 billion, and maintained a price of S$0.61 per SDR on 30 September 2024. With a Price-to-book (P/B) ratio of 0.5x, for the year through to 25 Oct, the stock maintained a 0.73 beta coefficient to the Hang Seng Index.  
• HSBC Holdings PLC (HSHD) SDR to Underlying ratio is 5:1. The global bank, bridging the East and West, offers diverse financial services. The bank’s revenue streams include net interest income from loans and non-interest income from account services, card fees, and fund management. In FY23, HSBC’s revenue grew by over 30% year-over-year, with significant contributions from its Wealth and Personal Banking segment. The listed stock’s market capitalisation stands at ~S$210 billion, and maintained a price of S$2.33 per SDR on 30 September 2024. With a P/B ratio of 1.0x, for the year through to 25 Oct, the stock maintained a 0.57 beta coefficient to the Hang Seng Index.
• BYD (HYDD) SDR to Underlying ratio is 10:1. BYD is a global leader in the electric vehicle (EV) industry, manufacturing and selling vehicles and auto-related components. The company also produces mobile handset components for major brands like Samsung and Huawei. In FY23, BYD’s revenue rose by 42% year-over-year, driven by a 62% increase in automobile-related shipment volumes. The listed stock’s market capitalisation stands at ~S$160 billion, and maintained a price of S$4.69 per SDR on 30 September 2024. With a P/E ratio of 23x, for the year through to 25 Oct, the stock maintained a 1.0 beta coefficient to the Hang Seng Index.  

*As at 30 September 2024

These SDRs provide investors with opportunities to invest in major companies across various sectors, offering diversification and exposure to international markets. 

Tencent and Alibaba Among Lion-OCBC Hang Seng Tech ETF Heavyweights

Both Tencent Holdings and Alibaba Group Holding rank among the five largest weights of Lion-OCBC Securities Hang Seng Tech ETF (HST). BYD is also a part of the Index. This is also the most traded ETF listed for trading on SGX by trading turnover. The ETF maintains a total expense ratio of 0.68%, and also generated the highest gains of the 10 SGX-listed ETFs tracking China Equities in 3Q24, with a 26.2% return. The Hang Seng Tech Index tracks the 30 largest TECH-themed companies listed in Hong Kong. These companies have high business exposure to selected tech themes including Cloud, Digital, E-Commerce, FinTech, Internet and Autonomous. The ETF AUM stood at S$411 million as of 30 September 2024. 

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