Hong Kong : Just another Chinese City?

A couple of days in Hong Kong underlined for me just how the city is starting to lose its edge against Singapore as a place to do business.  Right from the start the airport got a B grade.  Admittedly our plane arrived a couple of minutes early so perhaps it is unfair to expect the exit stairs to be in place; but the bus ride to the Terminal was erratic and slow.  So it was nearly 20 minutes after landing before I got to immigration.  A small thing but not the best of beginnings. 

Getting around the city was harder and unpredictable due largely to the antics of Occupy Central.  This protest made some good points in the beginning, but has gone on too long and is now disruptive and counterproductive.  Its impact is adversely affecting the local economy.  I was only able to plan on five meetings a day instead of my usual six.  A recent poll showed 73% of residents want an end to the occupation.  Not one person I spoke to was in favour of continued demonstrations.  The sit-in has passed it’s sell by date. 

  

I could see one of the sites from my hotel room : roughly 40 tents and a rather smaller number of people closing off the most important road in Central.  Taking taxis, usually a reliable route to meetings, became something of a lottery from my location.  The MRT is great if it goes where you want, and very cheap; but unfortunately it does not go everywhere you want to go.

Signs in Hong Kong

I have been going to Hong Kong on business for over 20 years.  This time I was struck by just how Chinese the former colony has become.  Not only do fewer taxis understand English but last year for the first time ever I needed an interpreter at one of my meetings; as I did again on one occasion on this trip.  What really made an impact was dinner with the local head of RHB, a broker good at sniffing out underfollowed and undervalued stocks.  I was the only Caucasian in a large restaurant.  Yes it was Chinese cuisine, but the venue was the Square in Exchange Square, one of the main buildings in the financial district.  Over one hundred people enjoying fine food – I recommend the minced pigeon, really tasty – and I was the odd one out.  That has never happened to me before in the centre of Hong Kong.

Hong Kong is still a good place to do business and remains the primary centre where China meets the world; but if it is not very careful that crown could get lifted.  I have never felt concerned about its preeminent position before.

Meetings were a mixed bag, but several themes recurred even though the businesses I met comprised a cross section including shoe retail, property, orange plantations, textiles and TV manufacture.  020 is at the forefront of the strategic thinking of almost every management team.  Prime intangible real estate on the best platforms will matter every bit as much over the next five years as top city centre locations.  Go where the traffic is, even if it is in the ether.

The other refrain related to a complaint we had heard during the interim results season.  The Chinese anti-corruption campaign has much to commend it but is causing officials to slow down approvals for almost everything.  That has to be having an impact on the wider economy since several companies mentioned delays caused to their business.  No good deed ever goes unpunished.        

President Xi has proven masterful at gathering power and bringing things under his personal control; but investigators have touched a lot of people, some of them with powerful relationships and relatives.  He has been making a lot of enemies and will need to manage the impact of continuing this campaign carefully. 

Back to business and my one thought is the way different companies are approaching the Internet of Things and the smart product cycle.  As a value investor I am looking for angles that combine asset protection and some Margin of Safety with upside from participation in growth areas of the economy.  Mobile has been leading the way.  We all know e-commerce is exploding.  Yet as devices proliferate I wonder how many of the present models are already obsolete.  Do you really need so many devices to access all that an average Chinese consumption addict desires : a super smart phone for instant gratification on the move; but when at home a large screen TV with quasi 3D gives you access and a whole lot more especially for multiplayer games and multimedia delivery.  What is the point of tablets and hybrid notebooks?  A 46” or 55” screen is just about the max for the average apartment where all the family can participate, in separate segments simultaneously if that is the way to accommodate all tastes.  Perfect too for older and less mobile members of society who may be less tech savvy and also may have less good eyesight. 

So is a renaissance for the TV industry just round the corner?  Active interactive users are expanding at the rate of around 2 million a month and the community has achieved critical commercial mass.  Hisense, Skyworth and TCL are the local champions and all are exploring ways to monetise this growing captive customer base.  For the record we own shares in Skyworth.