20081010-Sun Hung Kai-High-Beta Stocks

High-beta stocks - candidates to ride any short-term rebounds
􀂄 In the event of any short-term rebounds in the Hong Kong market, high beta
stocks are likely to ride along.
􀂄 In the past, large caps have led market rebounds with mid- to small-cap stocks
following. Apart from size though, we believe investors looking to benefit
from a short-term rebound should monitor stocks with high beta.
􀂄 Although beta alone is not a positive or negative indicator, it theoretically
illustrates a stock’s sensitivity to general market fluctuations. The higher the
beta, the stronger a stock will react to variations in the market. For example, a
stock with a beta of 1.25 indicates it will move 25% more than the market and
in the same direction. Investors should keep in mind that high-beta stocks are
two-edged swords that may also nosedive in a market plunge. However, in any
cases of a market rebound, high-beta stocks should be of great interest.
Our findings
􀂄 Based on beta, we have identified candidates that are likely to ride along any
cases of market rebounds. Of the stocks listed on the Hong Kong main board,
we focus on those with 3M average daily turnover of more than HK$5m. In
our view, stocks with low equity turnover will not move more than the market,
despite high beta.
􀂄 Of the over 1,000 stocks listed on the main board, 250 stocks had an average
three-month daily equity turnover greater than HK$5m. According to
Bloomberg, among these 250 stocks, 20% (53 stocks) have a six-month beta
above 1.3. These are listed in Figure 2 – 9 by market cap.
Results Breakdown
By Sector
􀂄 The oil, energy and commodity and property and related sectors dominate our
high-beta list, contributing 12 stocks each. Despite high beta offering
short-term trading opportunities, we would warn investors that under the
shadow of economic jitters, oil, energy and commodity companies are
suffering from falling prices for commodities and energy. Meanwhile, property
companies are also strained for cash due to China’s credit tightening. Our list
of high-beta stocks does not take fundamentals or industry outlook into
consideration, and simply offers short-term investment ideas that have
potential for riding a any short-term market rebounds. (See Figure 1)