HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

CK Infrastructure Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ck-infrastructure-holdings-l" target="_blank" data-smartkarma-citation="entities:163:1" rel="noopener">CK Infrastructure Holdings (1038 HK)</a> should thrive in the volatile market environment in 2025, given its stable earnings, diversified geography, low gearing, and consistent dividends.</li>
<li>Further reduction in US interest rate should potentially be positive to other currencies, and CKI has diversified exposure in the UK, Australia, Europe, and Canada to benefit.</li>
<li>Investors may turn more risk-averse in the next year. CKI's high earnings visibility, with many regulatory resets happening beyond 2025, is highly welcome in the market. </li>
</ul>



CK Infrastructure Holdings (1038 HK) should thrive in the volatile market environment in 2025, given its stable earnings, diversified geography, low gearing, and consistent dividends.
Further reduction in US interest rate should potentially be positive to other currencies, and CKI has diversified exposure in the UK, Australia, Europe, and Canada to benefit.
Investors may turn more risk-averse in the next year. CKI's high earnings visibility, with many regulatory resets happening beyond 2025, is highly welcome in the market. 


2025 High Conviction: CKI (1038 HK) - Perfect Harmony

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Snap-Back rallies have continued in the largest global equity markets (U.S., Japan, and Europe).</li>
<li>Japan's TOPIX is still below 2690-2700 and the EURO STOXX 50 is below 4884, and whether they roll over here or from marginally higher levels, lower highs remain likely.</li>
<li>It all fits with our ongoing belief (since our July 25, 2024 Int'l Compass) that MSCI ACWI is going through a 1- to 4-month pullback/consolidation (we are one month in).</li>
</ul>


Snap-Back rallies have continued in the largest global equity markets (U.S., Japan, and Europe).
Japan's TOPIX is still below 2690-2700 and the EURO STOXX 50 is below 4884, and whether they roll over here or from marginally higher levels, lower highs remain likely.
It all fits with our ongoing belief (since our July 25, 2024 Int'l Compass) that MSCI ACWI is going through a 1- to 4-month pullback/consolidation (we are one month in).


Shift Now to Defensives; Snap-Back Rally Testing Resistance $ACWI $SPX; Neutral Outlook Intact

<ul>
<li>At 5.4% for FY24-26F, <a href="https://www.smartkarma.com/entities/hong-kong-china-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:375:1" rel="noopener">Hong Kong &amp; China Gas (3 HK)</a> has the second-highest dividend yield among its HK utility peers. A lower US rate makes it attractive.</li>
<li>An unchanged interim DPS of HK$0.12 despite a decline in reported net profit suggests the resilience of its dividend stream. Core operating profit has increased 2%.</li>
<li>While gearing has gone up, HKCG still has excellent cash-generating ability (FY23: HK$10.9bn). It has also cut back in capex with a 33% YoY drop for 1H24. </li>
</ul>


At 5.4% for FY24-26F, Hong Kong &amp; China Gas (3 HK) has the second-highest dividend yield among its HK utility peers. A lower US rate makes it attractive.
An unchanged interim DPS of HK$0.12 despite a decline in reported net profit suggests the resilience of its dividend stream. Core operating profit has increased 2%.
While gearing has gone up, HKCG still has excellent cash-generating ability (FY23: HK$10.9bn). It has also cut back in capex with a 33% YoY drop for 1H24. 


HK & China Gas (3 HK): A Yield Play Back in Favour

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

<ul>
<li>Hong Kong utilities have performed well on an absolute basis and even better on a relative basis this year.</li>
<li>We revisit our original call on them from  January 2024</li>
<li>Continued market volatility and future US  interest rate cuts will provide continued support.</li>
</ul>


Hong Kong utilities have performed well on an absolute basis and even better on a relative basis this year.
We revisit our original call on them from  January 2024
Continued market volatility and future US  interest rate cuts will provide continued support.


Revisiting Hong Kong Utilities-Time to Sell?

TSE Tokyo Price Index TOPIX / Technical Analysis

<ul>
<li>We continue to believe a 1-4-month pullback/consolidation is ongoing. Important supports have been violated, including $110 on MSCI ACWI (ACWI-US) and $41 on MSCI EM (EEM-US).</li>
<li>We're shifting our outlook to neutral on $ACWI after being bullish since early-November 2023. Major price breakdowns combined with deteriorating market dynamics have increased the odds of a topping pattern.</li>
<li>Also downgrading Japan to market weight. 7/25/24 we said "Japan's TOPIX breaking below 2800-2815 is near-term bearish, suggests it could pull back to its long-term uptrend, or worse."</li>
</ul>


We continue to believe a 1-4-month pullback/consolidation is ongoing. Important supports have been violated, including $110 on MSCI ACWI (ACWI-US) and $41 on MSCI EM (EEM-US).
We're shifting our outlook to neutral on $ACWI after being bullish since early-November 2023. Major price breakdowns combined with deteriorating market dynamics have increased the odds of a topping pattern.
Also downgrading Japan to market weight. 7/25/24 we said "Japan's TOPIX breaking below 2800-2815 is near-term bearish, suggests it could pull back to its long-term uptrend, or worse."


Downgrading Japan; Stay Defensive; Downgrading Outlook on Global Equities $ACWI to Neutral

Hong Kong

HK Electric Investments and HK Electric Investments Limited is a fixed single investment trust in Hong Kong with a focus on the power industry. The Trust is a vertically integrated power utility and its operations comprise the generation, transmission, distribution, and supply of electricity to Hong Kong Island and Lamma Island.

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HK Electric Investments (2638 HK)

2025 High Conviction: CKI (1038 HK) - Perfect Harmony

CKI should thrive in a volatile market with stable earnings, diversified geography, low gearing, and consistent dividends. Further, a lower US...

Osbert Tang, CFA

Shift Now to Defensives; Snap-Back Rally Testing Resistance $ACWI $SPX; Neutral Outlook Intact

Shift Now to Defensives (Health Care, Telecommunications, Utilities, and Consumer Staples); Snap-Back Rally Testing Resistance $ACWI $SPX; Neutral...

Vermilion Research

HK & China Gas (3 HK): A Yield Play Back in Favour

HKCG offers an attractive dividend yield of 5.4% for FY24-26F, backed by its strong cash generation and reduced capex. Lower US interest rates...

Osbert Tang, CFA

Revisiting Hong Kong Utilities-Time to Sell?

Hong Kong utilities have outperformed this year, with future US interest rate cuts expected to provide further support. Revisiting our original...

Rikki Malik

Downgrading Japan; Stay Defensive; Downgrading Outlook on Global Equities $ACWI to Neutral

Downgrading Japan TOPIX, Nikkei; Stay Defensive; Downgrading Outlook on Global Equities $ACWI $EEM to Neutral; Many Risk-Off Signals increase odds...

Vermilion Research

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2025 High Conviction: CKI (1038 HK) - Perfect Harmony

CKI should thrive in a volatile market with stable earnings, diversified geography, low gearing, and consistent dividends. Further, a lower US...

Osbert Tang, CFA

Shift Now to Defensives; Snap-Back Rally Testing Resistance $ACWI $SPX; Neutral Outlook Intact

Shift Now to Defensives (Health Care, Telecommunications, Utilities, and Consumer Staples); Snap-Back Rally Testing Resistance $ACWI $SPX; Neutral...

Vermilion Research

HK & China Gas (3 HK): A Yield Play Back in Favour

HKCG offers an attractive dividend yield of 5.4% for FY24-26F, backed by its strong cash generation and reduced capex. Lower US interest rates...

Osbert Tang, CFA

Revisiting Hong Kong Utilities-Time to Sell?

​Hong Kong utilities have outperformed this year, with future US interest rate cuts expected to provide further support. Revisiting our original...

Rikki Malik

Downgrading Japan; Stay Defensive; Downgrading Outlook on Global Equities $ACWI to Neutral

Downgrading Japan TOPIX, Nikkei; Stay Defensive; Downgrading Outlook on Global Equities $ACWI $EEM to Neutral; Many Risk-Off Signals increase odds...

Vermilion Research

Hong Kong utilities have outperformed this year, with future US interest rate cuts expected to provide further support. Revisiting our original...