Gao Juan, Victory Securities

Translated by Andrew Vanburen from a Chinese-language piece by market watcher Gao Juan of Victory Securities

MOST OF US buy something from the retail sector on a daily basis, and look for bargains like anyone else.

But it may be time to start buying more than bread, shoes and cosmetics from the retail sector.

I for one am starting to pay more and more attention to Hong Kong’s retail sector listed shares.

First, let’s take a look at where things stand these days on Hong Kong’s stock market.

We all basically briefly celebrated the news of a measure of political and financial stability coming to Greece, with Hong Kong being a bit more upbeat than its neighbors after the news from Southern Europe.

Following the victory of the pro-bailout party, the likelihood of Greece’s 11 million inhabitants pulling out of the European Union has been significantly reduced.

That gave a palpable shot of confidence to the arm of the investing community, and that is after all one of the core requirements for a healthy retail market.

It must be remembered that the vast bulk of products on offer in the retail sector can be considered “discretionary spending items.”

Therefore, when market sentiment is buoyant, consumers spend more on non-essentials.

Likewise, when shoppers open their billfolds wider for soda, shoes and shampoo, the listed firms holding the brand umbrella over these wares tend to flourish.

Market watcher Gao Juan likes Dah Chong Hong Holdings for its wide retail exposure.  Photo: Dah Chong

Therefore, perhaps more than any other sector, retail is joined at the hip with the general confidence of the population in the direction the domestic economy (or Greece’s) is trending.

It’s likely that the lack of a sustained upside following the good news from Athens stemmed from the fact that investors likely asked themselves: “Okay, that’s fine. But what about Spain? Italy?”

These are fair enough questions and remain to be answered.

However, the apparent near-term accommodation in Greece is certainly a good start to rebuilding consumer confidence and hence retail sales.

That being said, most investors – and consumers – are not blindly optimistic about prospects nor are they prone to Pollyanna-esque purchasing behavior.

China’s biggest trading partner is the EU, which is why a relatively small country like Greece could make such waves when its financial system begins to take on water.

However, China’s biggest single country trading partner remains the US, and things could be a lot better there economically.

Hong Kong shares' rough 2012 ride

Industrial output in May fell by 0.1% from a month earlier, and the all-important University of Michigan consumer confidence survey came in at just 74.1, far below the anticipated level of 77.5.

However, the whisperings of a new stimulus package are become audible murmurs, with many market experts expecting the Federal Reserve Board meeting this week to result in another measure meant to get the economy out of its current rut.

Therefore, the fact that consumer plays in Hong Kong have been lagging the benchmark Hang Seng Index for much of this year, along with the good news from Greece and the possible QE3 from the US, all point to the possibility of an updraft coming the way of HKSE-listed retail stocks.

One stock I feel is particularly worth watching is Dah Chong Hong Holdings Ltd -- a diversified conglomerate with operations in motor vehicle sales and services, food and consumer products sales as well as logistics services.

The firm, whose shares are approaching 52-week lows, has over 20 auto makes under its umbrella and is in an excellent market position to capitalize on any resurgence of vehicle sales in the region.

See also:

GOLD & GRAPES: HK-Listed Jeweler, Vintner Vetted

CHOW SANG SANG Sales Surge; Move Over, India?

CHOW SANG SANG Kept At ‘Buy’, HK Property Initiated ‘Outperform’

HK Jewelry Retailers: 'Buy CHOW SANG SANG, LUK FOOK On Weakness'

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