Sterling/HK shares: UK earnings as soon as a hedge, now a danger

The latest fall within the pound has understandably apprehensive UK buyers. However the influence can be vital for Asian corporations uncovered to the nation. Hong Kong-listed shares are among the many hardest hit.

Take into account banks listed in Hong Kong. The UK and Europe accounted for greater than a fifth of HSBC’s pre-tax income final yr. In June, publicity to UK credit score accounted for 1 / 4 of the group. HSBC’s earnings are delicate to actions within the pound as a consequence of excessive liquidity balances in sterling. Peer Customary Chartered’s underlying pre-tax revenue within the UK was round 9% final yr.

Native utility corporations might really feel the best influence. Energy Property, the bulk shareholder of Hongkong Electrical Firm – one among Hong Kong’s two largest energy technology corporations – owns a major quantity of property within the UK. It owns 41% of Northern Gasoline Networks, which owns the gasoline distribution community within the north of England. It additionally holds stakes within the British electrical energy manufacturing firm Seabank Energy.

Energy Property’ mum or dad firm, Cheung Kong Infrastructure Holdings, can be affected. The UK accounts for round a 3rd of Cheung Kong Infrastructure’s income. Different corporations linked to Cheung Kong Infrastructure embody native conglomerate CK Hutchison and developer CK Asset, all linked to the native billionaire Li Ka-shing. Each have a excessive publicity to UK investments.

This explains the weak point of all their inventory costs. These have fallen greater than 6% previously two days alone. Extra the e-book, the smaller the money flows to those teams. These corporations report their earnings in Hong Kong {dollars}, pegged to the US greenback.

When the pound fell to $1.30 in 2019, it triggered revenue warnings from these Hong Kong teams. They do not have a lot to sit up for at residence both, with analysts anticipating the financial system to contract this yr, down from progress expectations of 0.3%. The previous colony’s ties with Britain are too shut for the consolation of Asian buyers.

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