Hong Kong: -5.0% Underperformance, Negative Sharpe
OCF momentum returned 2.8% annually on Hong Kong stocks with negative Sharpe (-0.01). Holding company structures + China macro risk = worst risk-adjusted returns of any market tested.
OCF momentum returned 2.9% annually on Hong Kong stocks, 2000-2025, beating the Hang Seng by 1.3% per year. The Hang Seng returned just 1.6% annually. $10,000 grew to $20,860 vs Hang Seng's $14,900. The strategy was nearly fully invested (23 of 25 years), holding 20 stocks on average, but suffered a -50% max drawdown with Sharpe near zero. Modest alpha despite property/financial dominance. The quality screen found slightly better stocks than the stagnant Hang Seng.
Contents
Data: FMP financial data warehouse, 2000–2025. Updated March 2026.
What We Found
| Metric | Hong Kong (HKSE) | S&P 500 |
|---|---|---|
| CAGR | 2.8% | 7.8% |
| Volatility | 23.3% | 16.2% |
| Max Drawdown | -49.9% | -36.3% |
| Sharpe | -0.01 | 0.45 |
| Cash Periods | 2 of 25 | 0 |
| Win Rate | 36% | - |
Negative Sharpe means the strategy didn't even beat cash after adjusting for volatility. The high volatility (23.3%, highest among all markets) came from Hong Kong's exposure to China macro risk, real estate cycles, and geopolitical shocks.
Best year: 2006 (+64.5%). Worst year: 2021 (-30.5%). The strategy caught neither China's boom years (underperformed 2010-2014) nor avoided the busts (2018, 2021, 2024).
Why it failed: Hong Kong companies are often holding structures for Chinese assets. OCF at the HoldCo level doesn't reflect operating business quality. The divergence signal picked financial engineering, not genuine cash generation.
Part of a Series: US Results | India +5.4% Alpha | Canada Best Sharpe | Global Comparison
Run It Yourself
Screen Hong Kong stocks with OCF momentum on Ceta Research
Market cap threshold: HK$2B (~$256M USD), ROE > 10%, operating margin > 5%, OCF growth > NI growth.
Takeaway: Hong Kong demonstrates that OCF divergence fails when listed companies are holding structures rather than operating businesses. The signal needs clean financial statements, not complex cross-border structures.
Data: Ceta Research, HKSE 2000-2025. Full methodology: backtests/METHODOLOGY.md
