Main points of investment

1. Us stocks fluctuated greatly, while Hong Kong stocks performed strongly

As of January 19, 2022, since 2022, affected by the upward interest rates on US long-term bonds, US stocks have recovered significantly. The US S & P 500 index fell 4.9% and the NASDAQ index fell 8.34%, leading the decline in large categories of global assets. Some European and Asian markets also adjusted. In the industry, except for energy, major industry indexes of US stocks fell, with non-core consumer goods and information technology leading the decline in the growth sector.

At the same time, the Hong Kong stock market performed better, significantly better than US stocks, and was also among the top performers among large global assets.As of January 19, 2022, since the beginning of the year, the Hang Seng Index has risen 3.1%, the Hang Seng Composite Index has risen 2.1%, and Hang Seng Technology has fallen slightly by 0.5%. In the industry, the value industry led the rise, while the Hang Seng energy industry, financial industry, telecommunications industry and real estate construction led the rise. On January 20, the Hong Kong stock market performed even stronger, with the Hang Seng Index, the Hang Seng Composite Index and the Hang Seng Technology Index rising 3.42%, 3.79% and 4.5% respectively.

2. The reason behind the strength of Hong Kong stocks-- the expected improvement in the policy and fundamentals of the weighted sector.

In our report "the reappearance of the Dawn of Hong Kong stocks" in early January 2022, we emphasized that the dawn of Hong Kong stocks reappeared in January 2022, and the internal and external environment was conducive to the time window of rebound.China's stable economic policy is expected to be further loosened in the first quarter of 2022, and the impact of changes in the mainland policy environment on Hong Kong stocks is likely to improve marginally.Since the beginning of 2022, the repressed weighting industry of Hong Kong stocks in 2021 has ushered in the dawn.

2.1. The previous judgment on the financial and real estate stocks in the mainland (accounting for about 18.3% of the Hang Seng Index) has come true-the real estate "crisis" has gradually ushered in a "turnaround", and the "undead birds" in the inner house and inner silver stocks are expected to rebound.. 1) in December 2021, the Central Bank and the Bancassurance Regulatory Commission issued the Circular on mergers and acquisitions of Financial Services for risk disposal projects of key Real Estate Enterprises, encouraging banks to carry out M & A loans in a safe and orderly manner, focus on supporting high-quality real estate enterprises to merge and acquire high-quality projects of large-scale real estate enterprises that are out of danger and difficulties. 2) since the beginning of January 2022, the policy environment related to real estate has been improving continuously and moving towards a virtuous circle.

2.2. The judgment on the Internet (accounting for 24.2% of the Hang Seng Index) has come true-the improvement in the industrial policy environment has ushered in a deep rebound at the beginning of a long-term bear market.1) the marginal improvement of policy expectations leads to the catalysis of the rebound market. In 2022, the orientation of Internet policy has shifted from "preventing the disorderly expansion of capital" to "developing in the norm". On January 19, the National Development and Reform Commission, the people's Bank of China and other departments jointly issued "some opinions on promoting the healthy and Sustainable Development of platform economy." the aim is to promote the healthy and sustainable development of platform economy. 2) the rebound of Chinese Internet stocks in 2022 is actually a gradual transformation of the role of Internet companies from high-valued growth stocks to steady growth value stocks. You can refer to China Mobile Limited in 2009 or 2014. After the sharp fall of the previous year, there is a chance to have an actionable rebound. 3) the driving force of the short-term rebound in Internet stocks-the withdrawal of short squeezing bears, superimposed by Chinese-funded "Beishui" Jiachang Hong Kong stocks. If there is a significant rebound in the follow-up, beware of the short-selling force of the United States.

2.3. Hong Kong local finance and Macao local stocks (accounting for 23.7% of the Hang Seng Index): Hong Kong financial stocks benefit from the expectation of higher interest rates in Britain and the United States, and the revaluation will continue. Macau gaming stocks have benefited from the revision of the Gaming Law and emotional repair in the sector.

2.4. Value stocks of central enterprises (accounting for 6.9% of the Hang Seng Index): the spring tide of revaluation of central enterprises is in the ascendant.. 1) in 2021, the benefit growth of central enterprises reached the best level in history, and the net profit increased by 29.8% compared with the same period last year. 2) with the implementation of the domestic economic stabilization policy in 2022, the state-owned enterprises and central enterprises will undertake the main task of stabilizing growth. 3) at the end of the three-year reform of state-owned enterprises in 2022, the fundamentals of some central enterprises in Hong Kong are ushering in opportunities for turnaround or transformation.

3、To reiterate2The medium-term driving force of the rebound of Hong Kong stocks in the bull market in 022

3.1. The tide of reallocation of social wealth to equity assets in China is in the ascendant, and the full adjustment of Hong Kong stocks in 2021 is expected to attract southward capital inflows.Taking history as a mirror, 2-3 months behind the high of the AH premium index, southward funds tend to have the best stages of net inflows. As of the end of 2021, the AH premium index was 147.0, at the 98 per cent quantile level since 2015, close to an all-time high; southward capital inflows accelerated, with a southward net inflow of 40.752 billion yuan in December, the largest since March 2021; and southward capital inflows maintained a trend in January 2022, with a net purchase of 26.245 billion yuan as of January 20.

3.2. In the medium term, the trend of increasing foreign holdings of Chinese assets is still there.The rising expectations of long-term foreign investors for the medium-and long-term appreciation of the renminbi and the increased willingness to increase their holdings of Chinese assets, including treasury bonds and high-quality stocks familiar to foreign investors, are conducive to the rebound of Hong Kong stocks. The Hong Kong dollar has strengthened against the US dollar since late December, with a marked increase in foreign preference for Chinese assets, including treasury bonds and high-quality stocks. As China's economy stabilizes and recovers and the renminbi remains strong in the second half of 2022, foreign investors may be more willing to increase their holdings of Chinese stocks, especially high-quality assets in Hong Kong stocks.

4. short-term market outlook: Hong Kong stocks usher in the dawn in the spring breeze of China's policy of "steady growth and broad currency".

First of all, the United States "water collection" is only expected rather than reality, heart rather than wake up, the impact on the "global valuation depression" Hong Kong stock market is limited, gradually desensitized. Although the expectations of interest rate hikes and shrinking tables in the United States have risen recently, and interest rates on US bonds have risen rapidly, long-end interest rates in the United States are still historically low, and more importantly, overseas dollar liquidity is still abundant, and Taper is only reducing the size of bond purchases, far from a substantial contraction.

Second, China's monetary policy is "dominated by me". With the efforts to stabilize the economic and fiscal policy and the marginal improvement of industrial policy, it is expected that Hong Kong stocks will be in the time window to rebound before the US interest rate meeting in mid-March.

Third, I would like to remind you that there were many twists and turns in the rebound of Hong Kong stocks in the first half of this year. 1) in the process of the great logic of the Internet from high growth and high valuation to "standardized development and return to value", the Internet market, as the mainstay of Hong Kong stocks and the backbone of the index, is still rebounding. Once the rebound in the Internet and real estate in the first quarter is significant, such as a rebound of more than 30% from the bottom of the year, there is a high probability that foreign investment will still go short in reverse. 2) there is a high probability of raising interest rates at the US interest rate meeting in March, and after that, we should beware of the short-term impact of the Fed's substantial tightening on Hong Kong stocks.

5. Investment suggestions: based on the policy to improve the spring breeze, embrace the revaluation of Hong Kong stocks

Investment direction one: medium-and short-term focus on the "mean return" market.

1) Hong Kong stock state-owned enterprise real estate, Hong Kong stock Internet leader: these assets in the hardest-hit areas hit by policies in 2021 are expected to continue to fall and rebound in the short term. After a rapid rebound due to short squeezing, Hong Kong stocks will differentiate, or focus on long-term value and medium-term growth. For overseas investors, after this rapid rebound, combined with the pace of US monetary policy tightening, wait for the rebound to go short again when valuations diverge. The Internet market still has to trade repeatedly this year.

2) focusing on the layout of China's "wide currency, wide credit" and active fiscal policy in the first quarter, pay attention to the revaluation of construction materials, securities firms and some "bond" high-interest stocks.

3) Hong Kong's local financial stocks, benefiting from the expectation of higher interest rates in Europe and the United States, the revaluation will continue.

Investment direction 2: based on the medium-and long-term, gold panning with the characteristics of Hong Kong stock science and technology companies, advanced manufacturing leaders.

1) New energy vehicle industry chain: the main battlefield is A shares, while Hong Kong stocks have characteristic vehicles and superior spare parts.

2) in the "double carbon" era, the revolution of energy technology is in the ascendant, and the main battlefield is A shares, while Hong Kong stocks are characterized by new energy industry chains such as Fengguang Nuclear hydrogen, new energy operators, power equipment and so on.

3) Hong Kong stock TMT leader, gold panning benefits from the domestic "Alliance of everything" and the US demand for high-quality Hong Kong stock technology stocks, especially consumer electronics and software.

Investment direction 3: based on China's long-term common prosperity and "double cycle" development strategy, increase the consumption leader at every bargain.

1) blue chip stocks in the fields of home appliances and electrical tools exported to Europe and the United States. The US real estate boom will continue in the first quarter of 2022, the economic data are good, the impact of the epidemic will be weakened, and social economic demand will increase.

2) Food and Beverage: the layout benefits from the upgrading of industry consumption, optimization of product structure and price increases in beer and dairy products, focusing on agricultural stocks that benefit from the bottoming out of the 2022 pig cycle. Risk hints: the economic growth rate of China and the United States has declined more than expected; the duration and magnitude of high inflation in the United States has exceeded expectations; the monetary policy in the United States has tightened ahead of schedule; the risk of game among big countries; and the variation of the epidemic situation of COVID-19 has exceeded expectations.

Report body

1Us stocks fluctuated and Hong Kong stocks performed strongly

As of January 19, 2022, since 2022, affected by the upward interest rates on US long-term bonds, US stocks have recovered significantly. The US S & P 500 index fell 4.9% and the NASDAQ index fell 8.34%, leading the decline in large categories of global assets. Some European and Asian markets also adjusted. In the industry, except for energy, major industry indexes of US stocks fell, with non-core consumer goods and information technology leading the decline in the growth sector.

At the same time, the Hong Kong stock market performed better, significantly better than US stocks, and was also among the top performers among large global assets.As of January 19, 2022, since the beginning of the year, the Hang Seng Index has risen 3.1%, the Hang Seng Composite Index has risen 2.1%, and Hang Seng Technology has fallen slightly by 0.5%. In the industry, the value industry led the rise, followed by Hang Seng Energy (+ 14.1%), finance (+ 8.3%), telecommunications (+ 6.5%) and real estate construction (+ 4.9%). On January 20, the Hong Kong stock market performed even stronger, with the Hang Seng Index, the Hang Seng Composite Index and the Hang Seng Technology Index rising 3.42%, 3.79% and 4.5% respectively.

2The reason behind the strength of Hong Kong stocks-- the expected improvement in the policy and fundamentals of the weighted sector

In our report "the reappearance of the Dawn of Hong Kong stocks" in early January 2022, we emphasized that the dawn of Hong Kong stocks reappeared in January 2022, and the internal and external environment was conducive to the time window of rebound.China's stable economic policy is expected to be further loosened in the first quarter of 2022, and the impact of changes in the mainland policy environment on Hong Kong stocks is likely to improve marginally. Since the beginning of 2022, the repressed weighting industry of Hong Kong stocks in 2021 has ushered in the dawn.

2.1. Before that, our judgment on the mainland's financial and real estate stocks (accounting for about 18.3% of the Hang Seng Index) has come true-the real estate "crisis" has gradually ushered in a "turnaround", and the "undead birds" in the inner house and inner silver stocks are expected to rebound.

• In December 2021, the Central Bank and the Banking and Insurance Regulatory Commission issued the Circular on mergers and acquisitions of Financial Services for risk disposal projects of key Real Estate Enterprises, encouraging banks to carry out M & A loans in a safe and orderly manner, focus on supporting high-quality real estate enterprises to merge and acquire high-quality projects of large-scale real estate enterprises that are out of danger and difficulties.

• Since the beginning of January 2022, the policy environment of real estate has been improving continuously and moving towards a virtuous circle.

2.2. The judgment on the Internet (accounting for 24.2% of the Hang Seng Index) has come true-the improvement in the industrial policy environment has ushered in a deep rebound at the beginning of a long-term bear market.

• The marginal improvement of policy expectations brings the catalysis of the rebound market. In 2022, the orientation of Internet policy has shifted from "preventing the disorderly expansion of capital" to "developing in the norm". On January 19, the National Development and Reform Commission, the people's Bank of China and other departments jointly issued "some opinions on promoting the healthy and Sustainable Development of the platform economy." although most of the content has been released by relevant regulators in 2021, it is still an important milestone that it finally becomes a rule approved by regulators. The aim is to promote the healthy and sustainable development of platform economy.

• The rebound of Chinese Internet stocks in 2022 is actually a gradual transformation of the role of Internet companies from high-valued growth stocks to steady growth value stocks. You can refer to China Mobile Limited in 2009 or 2014. After the sharp fall of the previous year, there is a chance to have an actionable rebound.

• Because the restructuring of the valuation system and the expected adjustment of the fundamentals of the relevant companies will not be achieved overnight, there will be a hopeless decline and a hopeful or fantasy rebound. Previously, the Internet platform used the ecosystem as the basis for competitive advantage and high stock valuations, but this advantage has become a trouble and drag under the change of policy anti-monopoly and common prosperity in 2021.

• In the long run, there are two successful transformation directions for the future development of Internet companies: 1) the first is to move towards high-tech products and gain a new life in Nirvana, similar to Microsoft Corp after 2013; 2) the second direction is to become a value stock with steady growth and steady dividends, similar to China Mobile Limited, which has been at its all-time high since 2007, and Microsoft Corp from 1999 to 2013. However, if the transformation is not successful, it will cease to exist many years later.

• Internet stocks short-term rebound of the driving force-short squeezing short withdrawal, superimposed Chinese "Beishui" Jiachang Hong Kong stocks.If there is a significant rebound in the follow-up, beware of the short-selling force of the United States. However, the Internet market in the second half of 2022 may be a resonant rebound between domestic and foreign investors, as China's economy stabilizes and recovers, major political events are successfully completed, and the RMB is expected to appreciate. Foreign investors are expected to increase their holdings of Chinese Internet companies that already have the attribute of value stocks.

2.3. Hong Kong local finance and Macau local stocks (23.7% in the Hang Seng Index).

• Hong Kong financial stocks benefit from expectations of higher interest rates in the UK and the US, and the revaluation will continue.

• Macau gaming stocks benefit from the revision of the Gaming Law and emotional repair of the plate.On January 14, 2022, the Macao Executive Council completed the discussion of the draft law on amending Law No. 16 / 2001 on the legal system of Lucky Gaming Operation in Casino, which will be submitted to the Legislative Council for deliberation. On the whole, the draft continues the direction of the consultation summary report, which is more relaxed than the consultation draft and is in line with expectations. It is worth noting that the draft deleted the previous major concerns of the market about profit distribution, the introduction of government representatives and other items, sending a positive signal.

2.4. Value stocks of central enterprises (accounting for 6.9% of the Hang Seng Index): the spring tide of revaluation of central enterprises is in the ascendant.

• The benefit growth of central enterprises will reach the best level in history in 2021. On January 19, the State Information Office held a press conference on the economic operation of the central enterprises in 2021. The relevant person in charge of the State-owned assets Supervision and Administration Commission revealed at the meeting that the benefit growth of the central enterprises in 2021 was the best in history, with operating income of 36.3 trillion yuan, an increase of 19.5% over the same period last year. Profits increased by 30.3%, and net profits increased by 29.8%. At the same time, operational efficiency has been greatly improved, the quality of development has been further improved, and R & D investment and investment have increased steadily, laying a solid foundation for future development.

• The policy of stabilizing the domestic economy will be launched in 2022.When the Central Economic work Conference plans its work in 2022, the requirement for fiscal policy is to "ensure the intensity of fiscal expenditure, speed up the progress of expenditure, and appropriately carry out infrastructure investment in advance", and emphasize the coordination and linkage of fiscal policy and monetary policy. Recently, the downward adjustment of LPR, the strength of local infrastructure investment, and the construction of major projects in many places have started, indicating the obvious strength of the stable economic policy. State-owned enterprises and central enterprises will take the lead in undertaking the main task of stabilizing growth.

• The spring tide of revaluation of central enterprises in 2022 is in the ascendant.. Under the requirement of "stability in economic work and striving for progress in stability", SASAC said that in 2022, around the goal of "two increases, one control and three improvement", central enterprises will combine the task of stabilizing growth with promoting high-quality development, so as to promote stability and consolidate stability, so as to make greater contributions to economic and social development. At the same time, 2022 marks the end of three years of state-owned enterprise reform. In the new era of implementing the "double carbon" strategy, high-quality development and common prosperity, the fundamentals of some central enterprises in Hong Kong are ushering in opportunities for turnaround or transformation.

(note: the values in brackets of the above plates are the weights of related industries and sectors in the Hang Seng Index as of January 19, 2022)

3Re-emphasize the medium-term driving force of "Hong Kong stock market rebounding in 2022"

3.1. The tide of reallocation of social wealth to equity assets in China is in the ascendant, and the full adjustment of Hong Kong stocks in 2021 is expected to attract southward capital inflows.

Taking history as a mirror, 2-3 months behind the high of the AH premium index, southward funds tend to have the best stages of net inflows. As of the end of 2021, the AH premium index was 147.0, at the 98 per cent quantile level since 2015, close to an all-time high; southward capital inflows accelerated, with a southward net inflow of 40.752 billion yuan in December, the largest since March 2021; and southward capital inflows maintained a trend in January 2022, with a net purchase of 26.245 billion yuan as of January 20.

3.2. In the medium term, the trend of increasing foreign holdings of Chinese assets is still there.The rising expectations of long-term foreign investors for the medium-and long-term appreciation of the renminbi and the increased willingness to increase their holdings of Chinese assets, including treasury bonds and high-quality stocks familiar to foreign investors, are conducive to the rebound of Hong Kong stocks. The Hong Kong dollar has strengthened against the US dollar since late December, with a marked increase in foreign preference for Chinese assets, including treasury bonds and high-quality stocks. As China's economy stabilizes and recovers and the renminbi remains strong in the second half of 2022, foreign investors may be more willing to increase their holdings of Chinese stocks, especially high-quality assets in Hong Kong stocks.

4. short-term market outlook: Hong Kong stocks usher in the dawn in the spring breeze of China's policy of "steady growth and broad currency".

First of all, the United States "water collection" is only expected rather than reality, heart rather than wake up, the impact on the "global valuation depression" Hong Kong stock market is limited, gradually desensitized.Although the expectations of interest rate hikes and shrinking tables in the United States have risen recently, and interest rates on US bonds have risen rapidly, long-end interest rates in the United States are still historically low, and more importantly, overseas dollar liquidity is still abundant, and Taper is only reducing the size of bond purchases, far from a substantial contraction.

Second, China's monetary policy is "dominated by me". With the efforts to stabilize the economic and fiscal policy and the marginal improvement of industrial policy, it is expected that Hong Kong stocks will be in the time window to rebound before the US interest rate meeting in mid-March.

Third, I would like to remind you that there were many twists and turns in the rebound of Hong Kong stocks in the first half of this year.1) in the process of the great logic of the Internet from high growth and high valuation to "standardized development and return to value", the Internet market, as the mainstay of Hong Kong stocks and the backbone of the index, is still rebounding. Once the rebound in the Internet and real estate in the first quarter is significant, such as a rebound of more than 30% from the bottom of the year, there is a high probability that foreign investment will still go short in reverse. 2) there is a high probability of raising interest rates at the US interest rate meeting in March, and after that, we should beware of the short-term impact of the Fed's substantial tightening on Hong Kong stocks.

5. Investment suggestions: based on the policy to improve the spring breeze, embrace the revaluation of Hong Kong stocks

Investment direction one: medium-and short-term focus on the "mean return" market.

1) Hong Kong stocks, state-owned enterprises, real estate, and Internet leaders in Hong Kong stocksThese assets in the hardest-hit areas hit by policies in 2021 are expected to continue to fall and rebound in the short term. After a rapid rebound due to short squeezing, Hong Kong Internet stocks will differentiate and focus on long-term value and medium-term growth. For overseas investors, after this rapid rebound, combined with the pace of US monetary policy tightening, wait for the rebound to go short again when valuations diverge. The Internet market still has to trade repeatedly this year.

2) focusing on the layout of China's "wide currency, wide credit" and active fiscal policy in the first quarter, pay attention to the revaluation of construction materials, securities firms and some "bond" high-interest stocks.

3) Hong Kong local financial stocksBenefiting from expectations of higher interest rates in Europe and the United States, the revaluation will continue.

Investment direction 2: based on the medium-and long-term, gold panning with the characteristics of Hong Kong stock science and technology companies, advanced manufacturing leaders.

1）New energy vehicle industry chainThe main battlefield is in A shares, while Hong Kong stocks have unique vehicles and superior spare parts.

2) in the "double carbon" era, the energy technology revolution is in the ascendant, and the main battlefield is in A shares, while Hong Kong stocks are characterized byFengguang nuclear hydrogen and other new energy industry chain, new energy operators, power equipment, etc.。

3）Hong Kong stock TMT leaderThe gold rush benefited from the domestic "Alliance of everything" and high-quality Hong Kong technology stocks needed by the United States, especially consumer electronics, software and so on.

Investment direction 3: based on China's long-term common prosperity and "double cycle" development strategy, increase the consumption leader at every bargain.

1）Home appliances and appliances exported to Europe and the United StatesBlue chip stocks in areas such as. The US real estate boom will continue in the first quarter of 2022, the economic data are good, the impact of the epidemic will be weakened, and social economic demand will increase.

2）Food and beverageThe layout benefits from industry consumption upgrading, product structure optimization and price increases in beer and dairy products, and focuses on agricultural stocks that benefit from the bottoming out of the 2022 pig cycle.

6. Risk hint

The economic growth rate of China and the United States fell faster than expected; the duration and magnitude of high inflation in the United States exceeded expectations; the monetary policy of the United States tightened ahead of schedule; the risk of game among big countries; and the variation of the epidemic situation of COVID-19 exceeded expectations.