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

The pound’s current plunge has rightly apprehensive UK buyers. However the influence can also be massive for these firms in Asia with publicity to the nation. Hong Kong-listed shares are among the many most affected.

Contemplate Hong Kong-listed banks. The UK and Europe accounted for greater than a fifth of HSBC’s earnings earlier than tax final yr. At June, UK credit score publicity was 1 / 4 of the group. HSBC earnings are delicate to actions within the pound because of having excessive liquidity balances in sterling. Peer Normal Chartered’s UK underlying pre-tax revenue was about 9 per cent final yr.

Native utility firms might really feel the most important influence. Energy Property, the bulk shareholder of Hongkong Electrical Firm — certainly one of Hong Kong’s two important electrical energy technology firms — has a major quantity of belongings within the UK. It holds 41 per cent of Northern Fuel Networks which owns the North of England gasoline distribution community. It additionally has holdings of UK electricity-generating firm Seabank Energy.

Energy Property’ father or mother firm Cheung Kong Infrastructure Holdings is one other one that’s impacted. The UK accounts for round a 3rd of Cheung Kong Infrastructure’s revenue. Different companies with hyperlinks to Cheung Kong Infrastructure embody native conglomerate CK Hutchison and developer CK Asset, all linked to native billionaire Li Ka-shing. Each have heavy funding publicity to the UK.

That explains the weak point in all their inventory costs. These have fallen greater than 6 per cent in simply the final two days. The weaker the pound, the much less money that flows to those teams. These firms report their earnings in Hong Kong {dollars}, pegged to the US greenback.

When the pound fell to $1.30 in 2019, that sparked revenue warnings by these Hong Kong teams. They’ve little to look ahead to at dwelling too, with analysts anticipating the economic system to contract this yr, down from expectations for 0.3 per cent progress. The previous colony’s ties to Britain are too shut for consolation for Asian buyers.