Despite awful data suggesting that 1 in 4 Americans have either lost their job or had a pay cut due to the ongoing COVID-19 pandemic, US stocks, led by FAANG, are holding up exceptionally well. Cautious investors, spearheaded by legendary Warren Buffett, are bashed left and right by traders who have correctly timed the V-shaped recovery of the indexes. The power of the “printing press” seems unstoppable, and inflation is still missing in action.

During these past eventful weeks, I continued to happily add to my positions, mostly averaging down on existing holdings that I initiated at much higher prices like SL Green (SLG). Thanks to the quick rebound, I managed to turn green many of my cyclical investments. However, I am now increasingly wary of putting new money at work in this market. Stocks trade close (or even higher in some cases) to pre-COVID levels, despite a global economy in much worse shape. The consequence is that if valuation levels were considered high before the pandemic, they have now officially skyrocketed and reached orbit.

In search of value, I took one of the few viable options left: international diversification. I decided to concentrate my efforts on the beaten-down Hong Kong market, where the pandemic problems have only compounded with well-known pre-existing issues. However, I decided to look past the city’s current difficulties: political turmoils can potentially constitute attractive long-term setups, as long as you have faith that the country will not default or succumb to protests and riots. Hong Kong is a well-established trading center that provides extensive access to the 2nd largest world economy. The recent secondary listings of NetEase (NTES) and (JD) offer investors a glimpse into the future of Hong Kong. The island will continue its critical role in providing access to capital to large Chinese businesses, and with the new security law about to be ratified, the PRC has decided it will no longer tolerate chaos there.

Locals must fall back in line with Beijing’s rule of law. Sympathetic public statements to Hong Kong democratic movements aside, there is very little that the international community will do to prevent China from ruling a part of its own country. It may take a while longer, but ultimately, market stability will return, and with it, buyers. The capital inflow will likely help to lift the Hang Seng index, which is currently trading only 25% higher than it was ten years ago. It is, however, essential to see beyond the seemingly poor returns. Unlike in the US, where a significant P/E expansion had a big role in lifting investors’ returns, in the last decade, the P/E multiple for the Hang Seng has compressed from about 19x to the current 10x.

Source: Morningstar

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Besides multiples, investors should also consider that many companies listed in Hong Kong are likely to benefit from higher long-term growth rates than their US counterparts (due to better exposure to the Chinese domestic market). All in all, there is a significant amount of value waiting to be unlocked here by patient investors.

Exposure through an ETF like the iShares MSCI Hong Kong (EWH) is probably the easiest route for most. The ETF is a cheap way to acquire geographical diversification; it quotes in dollars and, because the HKD pegs to the USD, there is virtually zero currency risk involved. The current yield of almost 3% is a nice plus. Hong Kong companies, thanks to their “British heritage,” are known to offer a sensible approach to shareholders’ return. However, more enterprising investors might be interested in individual stock picks. If you also are, read on. Here are some promising HK-listed companies in which I recently started long positions in my retirement portfolio:

1. CK Hutchison Holdings (OTCPK:CKHUF)(OTCPK:CKHUY)

Investment thesis: If my buyings were to be limited to just one stock, this would be it. A genuine buy and hold proposition. This diversified conglomerate trades at P/BV of 0.4x, a forward P/E below 6x, and offers a dividend that exceeds 6%. The numbers compare favorably against a five years average P/BV of 0.7x, implying a significant discount to fair value. This low-leveraged (A-rated balance sheet) fortress has diversified interests in telco, retail, utilities, infrastructure, and energy, with the ability to generate substantial cash flow throughout the cycle. The actual exposure to Hong Kong is also very minimal as the company earns its revenues globally. The company is the flagship holding of legendary corporate leader Li Ka-Shing, which controls about 30% of CKH. In my mind, I see CK Hutchinson as a less financially-centered Chinese version of Berkshire Hathaway (BRK.B), and I have little doubt that Li Ka Shing’s son Victor is managing the company for the long term benefit of all shareholders.

2. Power Assets Holdings (OTCPK:HGKGF)(OTCPK:HGKGY)

Investment thesis: This is the classic stock I would recommend to my grandma. Probably one of the most boring shares out there, it trades around book value and a forward P/E below 14x. It also currently offers a yield of almost 6.5%, which I see as slow-growing, but extremely safe (A-rated balance sheet). PAH’s most valuable assets are a 40% stake in UK Power Network (UKPN), a 33.4% stake in Hong Kong Electric Investments (HKEI), and some Australian assets, including Powercor Australia and SA Power Networks. PAH has very close ties to CK Hutchinson: CKH’s subsidiary CK Infrastructure Holdings (OTCPK:CKISF)(OTCPK:CKISY) owns about 40% of PAH shares. The reason for owning PAH directly over CKI or CKH is that the company is a pure-play on regulated utility assets, on which PAH derives 80% of its revenues. The high yield is hence safe, secured by the business’s stable cash flow and low degree of uncertainty.

3. China Merchants Port Holdings (OTC:CMHHF)(OTCPK:CMHHY)

Investment thesis: Another extremely undervalued infrastructure play, CMH trades at about 2x cash flow, P/BV of 0.4x, and forward P/E of 8x. The undervaluation here is so evident that there has been some speculation that CMH majority shareholder’s China Merchants Group has engaged advisers to take the company private. The company owns stakes in several of the best port assets in mainland China. Since 2010, CMH has also expanded by acquiring strategic overseas port assets in emerging markets, including Sri Lanka, Nigeria, Brazil, and Turkey. The high yield of 8.5% is safe, backed by an investment-grade balance sheet and low leverage. While the high growth days of China are probably gone for good, I still like this one ahead of a recovery in international trade. Eventually, I still see countries as growing more connected, not less, over the next decade.

4. Sinopharm Group (OTCPK:SHTDF)(OTCPK:SHTDY)

Investment thesis: Sinopharm is one of the most promising healthcare stocks listed on the Hang Seng Index. While short-term headwinds are playing against it, I expect Sinopharm to be a long-term winner based on a clear trend of industry consolidation playing out in China; as it did back in the times, in the States, with the oligopoly achieved by AmerisourceBergen (ABC) McKesson (MCK) and Cardinal Health (CAH). Sinopharm is the only Chinese medical distributor with truly nationwide logistic capabilities and is already the market leader with approximately 20% market share, more than double the 8% of its closest two competitors. The organic growth of the medical distribution business in China, combined with gains in market share against smaller competitors, should help Sinopharm sustain a high EPS growth rate over the next decade. The company pays a nice 3.3% dividend, and the payout has grown consistently with the business over the past decade.

5. BOC Hong Kong Holdings (OTCPK:BNKHF)(OTCPK:BHKLY)

Investment thesis: Hong Kong has a highly developed, diverse, and competitive financial sector. I decided to get some exposure here as well, choosing Bank of China over the current market leader HSBC for a simple reason: the wind has changed. The UK days are gone, and China is the future. BOC Hong Kong has a close connection to its parent and the mainland; these ties will be the key to benefit from the ever-increasing integration of Hong Kong with China. BOC Hong Kong serves the financial needs of a large number of mainland companies, and its sticky deposit base is second only to HSBC. The bank has historically earned an ROE of approximately 12%, and its current valuation at 0.9x P/BV compares very favorably with a longer-term average of 1.4x, leading me to believe the shares are attractive now. I believe mid-single-digit earnings growth is achievable over the next decade, and while waiting for capital appreciation, investors can enjoy a high dividend yield of 6%.

6. Hysan Development Co Ltd (OTC:HYSNF)(OTCPK:HYSNY)

Investment thesis: Hong Kong is one of the most densely populated areas in the world, and due to its natural boundaries, things are not going to change anytime soon. While this does not exactly bode well for tenants, it creates an excellent environment for landlords. Among the countless great companies dealing in RE listed in Hong Kong, I decided on starting an investment in Hysan Development, a developer owning some key trophy assets in Causeway Bay. Hysan has more than 4 million square feet of high-quality office, retail and residential properties, with a preponderance for office and retail, which make up for approximately 90% of the company’s NOI. The protests and the pandemic have struck this company hard, with shares trading close to where they were a decade ago. I find the valuation absurd, especially when considering Hysan’s free cash flow per share went from about 1 HKD in 2010 to 2.6 HKD in 2019. The company’s dividend, which Hysan has grown for almost 20 years, now yields nearly 6%, and the company’s operations fully cover it. The company also employs a low degree of leverage, and its balance sheet is rated A- by Moody’s and Fitch. The founding Lee family maintains a controlling interest of about 40% in the firm, which I see as a positive, with interests aligned with minority shareholders.

Disclosure: I am/we are long SLG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long all the six mentioned investment ideas on their primary listing on the HSI

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.