Of late, stock market volatility seems to share a significant relationship with US President Trump’s flippant and mercurial nature. In the past few weeks, global bourses have seen stock prices have been on a rollercoaster ride. Amidst the fray, market veteran Dr. Chan Yan Chong has called for investors to put more emphasis on the US interest rate outlook, than on the debilitating US-China trade war. 

This is because, at this juncture, Trump is showing more concern about US monetary policy than on how US-China trade talks are progressing. Lashing out at the US Federal Reserve recently, Trump rhetorically asked on Twitter: “… who is our bigger enemy, Jay Powell or Chairman Xi?”

Last month in August, Germany – for the first time – sold 30-year government bonds with zero coupon. In fact, the entire bund yield curve in Germany has already pushed to negative. This phenomenon further revealed that too much money is flowing in the global financial system. As a result, Dr. Chan believes that the trend of the US Dollar will dictate how global funds would flow.  

Under this backdrop, Dr. Chan advises investors to look into public utility stocks that deliver high and sustainable dividend yields as they should become highly sought after to feed the appetite of yield seekers. 

In Hong Kong, public utility stocks such as CLP Group (00002.HK),  HK & China Gas Company (00003.HK) and its parent Henderson Land (00012.HK), are examples of high quality and high yielding counters. Since the run-up in the last rally, stock prices of these stocks have corrected significantly to make their valuations even more attractive now. Due to their non-cyclical nature, operations and revenue are also highly stable. In addition, there is also a high possibility of bonus issue for HK & China Gas or Henderson Land. 

Apart from that, Dr. Chan also pointed out that with Hong Kong’s flagging retail sector, investors should turn their heads towards better yielding HK-listed real estate investment trusts (REITs) with majority of assets and operations in Mainland China. Some of such quality counters could even fetch 6-percent yield. More importantly though, such REITs could see their income being bolstered by the central government’s strong push for domestic demand, further improving their investment merits. 

While the depreciation of the Chinese Renminbi may impact the financial performance of such HK-listed REITs (due to currency translation back to Hong Kong Dollar), it also helps to support the overall competitiveness of Chinese corporations.  

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