Concerns are mounting in Hong Kong on how rising inflation will impact margins of listed companies. Global commodity prices have spiked amid demand-driven inflation. Already, several manufacturers with March year-ends have reported lower-than-expected earnings and weaker earnings forecast. And we could see more companies doing the same at the upcoming August earnings season.
Consumer staples, tech & electronic hardware, auto & part, and utilities related sectors are likely to experience margin contraction given their high percentage of raw materials at the direct production cost level. To mitigate this risk, shift your focus to sectors with low exposure to raw materials.
Financial Sector
Hong Kong’s financial sector looks attractive given the better economic conditions, and minimal short-term earnings risk from margin erosion.
AIA, Bank of China (Hong Kong), and China Merchants Bank stand out.
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