Value-Momentum on Hong Kong Stocks: 9.34% CAGR, +8.03% Alpha vs Hang Seng

Hong Kong is a boom-bust market. The value-momentum composite captured that pattern with 9.34% CAGR from 2001 to 2025, generating +8.03% excess return over the Hang Seng Index. The path was rough: max drawdown hit -62.75% in 2008. The 2006-2007 boom delivered +55.93% and +67.80%. The 2024-2025 recovery added +39.69% and +21.98%.

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 March 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=bNkp98w4Xb

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 +8.03% excess return over the Hang Seng is one of the largest alpha figures 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. +55.93%, +67.80%, -62.74%. 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.

+8.03% excess over the Hang Seng is the real story. Measured against its local benchmark, value-momentum on HKSE generated one of the largest alpha figures 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 percentage points annually is still a strong result.

2024-2025 recovery is real. +39.69% in 2024 and +21.98% 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

-62.75% max drawdown. This matches 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 -30.81% 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 below 50%. At 47.06%, the portfolio loses more semi-annual periods than it wins. The positive CAGR comes from the magnitude of wins being larger than losses, not from consistency.

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 +2.85%.

Takeaway

Value-momentum on HKSE produced 9.34% CAGR with +8.03% 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.