Under today's uncertain economic conditions, some good buys can be found among middle-sized industrial stocks listed in Hong Kong, according to Chung Man-wing, managing director of the Pacific regional group for JF Asset Management.
He believes Hong Kong and Taiwan-listed manufacturers selling into US and European markets will continue to benefit from the global outsourcing trend in manufacturing. This factor helps to offset an otherwise gloomy economic picture.
'In terms of the economy, we are still clearly struggling in Hong Kong, in terms of high unemployment, the continued deflationary spiral, and there is still a very low level of domestic investment and consumption,' he said.
Looking ahead over the next 12 months, he foresees three positive developments. The weaker US dollar, which could strengthen the local economy; a successfully reflated US economy, which would stimulate demand in that country; and China's continued economic development.
'From my point of view, the development in China looks like being the most secure of these positive factors. That must be very good news for low-cost manufacturers that are producing in China using its lower costs of production and exporting to the rest of the world, particularly the US and euroland,' he said.
Mr Chung said China's accession to the World Trade Organisation and the recent Closer Economic Partnership Arrangement (Cepa) deal with Hong Kong were two stimulants to the industrial sector. 'The mid-cap industrial stocks that are listed in Hong Kong, and increasingly in Taiwan, are almost classic examples of winners. They are beneficiaries of the outsourcing trend. On average, their share prices have performed very well over the last 12 to 18 months, partly on their own merits and partly because large local blue chips are struggling to produce returns and further increase their profitability.'