Value-Momentum on Hong Kong Stocks: 9.88% CAGR, +8.57% Excess Return vs Hang Seng

Hong Kong is a boom-bust market. The value-momentum composite captured that pattern with 9.88% CAGR from 2001 to 2025, generating +8.57% excess return over the Hang Seng Index. The path was rough: max drawdown hit -61.79% in 2008. The 2006-2007 boom delivered +54.00% and +66.71%. The 2024-2025 recovery added +39.95% and +21.96%.

Contents

1. Method
2. The Screen
3. What We Found
4. Key Observations
5. Limitations
6. Takeaway
7. Part of a Series

This isn't a smooth compounder. It's a cyclical market that rewards patience and punishes weak hands. But measured against its local benchmark, the alpha is substantial.

Data: FMP financial data warehouse, 2000–2025. Updated May 2026.

Method

Based on Asness, Moskowitz, and Pedersen (2013). For the full methodology, see our US flagship post.

The Screen

-- Value-Momentum Hong Kong (HKSE) Screen
-- Run at: cetaresearch.com/data-explorer?q=7_dr5lIX84

SELECT
    k.symbol,
    p.companyName,
    f.priceToEarningsRatioTTM as pe_ratio,
    k.returnOnEquityTTM * 100 as roe_pct,
    f.debtToEquityRatioTTM as debt_to_equity,
    k.marketCap / 1e9 as market_cap_billions
FROM key_metrics_ttm k
JOIN financial_ratios_ttm f ON k.symbol = f.symbol
JOIN profile p ON k.symbol = p.symbol
WHERE f.priceToEarningsRatioTTM > 0
    AND f.priceToEarningsRatioTTM < 20
    AND k.returnOnEquityTTM > 0.10
    AND f.debtToEquityRatioTTM >= 0
    AND f.debtToEquityRatioTTM < 1.0
    AND k.marketCap > 2e9
    AND p.exchange IN ('HKSE')
ORDER BY f.priceToEarningsRatioTTM ASC
LIMIT 100

What We Found

Full period summary (2001-2025):

Only 2 cash periods. Hong Kong's exchange is deep enough that the screen almost always finds 10+ qualifying stocks. The +8.57% excess return over the Hang Seng is the largest alpha figure in the study, reflecting how poorly the broad Hong Kong market has performed over this period while value-momentum names picked up the slack.

Year-by-year results:

Key Observations

The 2006-2008 cycle tells the whole story. +54.00%, +66.71%, -61.79%. Hong Kong's market is a leveraged play on China's economy. During the mid-2000s boom, mainland capital flooded into Hong Kong-listed value stocks. Momentum concentrated the portfolio in exactly the names benefiting most. Then the global financial crisis wiped out those gains in a single year. A $10,000 investment grew to roughly $27,000 by end of 2007 and fell back to $10,000 by end of 2008.

+8.57% excess over the Hang Seng is the real story. Measured against its local benchmark, value-momentum on HKSE generated the largest alpha figure in the study. The Hang Seng's poor performance over this period, dragged down by property, financials, and tech regulatory crackdowns, means a disciplined value screen had a low bar to clear. But clearing it by 8.6 percentage points annually is still a strong result.

2024-2025 recovery is real. +39.95% in 2024 and +21.96% YTD in 2025. China's stimulus measures in late 2024 drove a re-rating of Hong Kong-listed value stocks. The strategy's momentum component captured the leaders of that rally. Whether this marks the start of a sustained recovery or another boom-bust cycle remains to be seen.

Limitations

-61.79% max drawdown. This is comparable to India's drawdown and is among the deepest of any exchange in the study. Hong Kong's leverage to China macro makes deep drawdowns a recurring feature, not a one-time event. 2018 saw -31.92% on trade war fears alone.

The drawdown path is violent. Hong Kong's value stocks are China-exposed cyclicals. The value filter doesn't provide the same crisis protection here that it does in South Africa or Canada.

Win rate above 50%. At 70.59%, the portfolio wins most semi-annual periods. Combined with the +8.57% annual excess, this is the cleanest within-market alpha in the study.

China regulatory risk. The 2021 regulatory crackdown on tech and education companies froze the market. Value stocks with low P/E weren't directly targeted, but the broader sentiment damage limited returns to just +4.53%.

Takeaway

Value-momentum on HKSE produced 9.88% CAGR with +8.57% excess over the Hang Seng. The strategy works in Hong Kong, but the ride is violent. Deep drawdowns, boom-bust cycles, and high concentration in China-exposed cyclicals make this a position for investors who understand what they're buying: leveraged exposure to China's economic cycle, filtered through a value screen.

The 2024-2025 recovery shows the upside. The 2008 crash shows the cost.

Part of a Series

• Value-Momentum: US Stocks
• Value-Momentum: Global Exchange Comparison

Data: Ceta Research. FMP financial data warehouse, 2000-2025.

Past performance does not guarantee future results. This is research content, not investment advice.