Source: Broker China Author: Pei Lirui
Since this year, the Hong Kong stock internet sector has risen and then declined, and has embarked on a reverse V trend, while investors who invest in the Hong Kong stock internet have stabilized this rollercoaster market and continued to enter the market through ETFs.
According to data from the Shenzhen Stock Exchange, as of March 27, the share of the Hong Kong Stock Connect Internet ETF increased from 5.389 billion shares at the end of 2022 to 10.227 billion shares, exceeding 10 billion shares, a growth rate of nearly 90%; the fund size increased from 3.840 billion yuan to 7.091 billion yuan, an increase of nearly 85%. In addition, related products such as Hang Seng Connect ETF, Hang Seng Technology ETF, and Hang Seng Index ETF have all experienced some scale growth this year.
Relevant fund managers believe that the correction in the Hong Kong stock internet sector since February is mainly due to the settlement of profits by some investors and the market's concerns about the extent of interest rate hikes. If the end of October 2022 is what Buffett called a “sweet hitting point,” then after market adjustments have been made, the current Hong Kong stock internet sector is getting closer and closer to the “batting point.”
Why did the Hong Kong stock internet sector fall into a pullback
The Hong Kong Stock Connect Internet ETF tracks the China Securities Hong Kong Stock Connect Internet Index. The index mainly selects securities of 30 listed companies involved in Internet-related businesses within Hong Kong Stock Connect as an index sample to reflect the overall performance of securities of Internet-themed listed companies within Hong Kong Stock Connect. The top five weighted stocks are Tencent Holdings, Xiaomi Group-W, Kuaishou-W, and Shangtang-W.
From the end of October last year to the end of January this year, the Hong Kong stock internet sector once experienced a major rebound. The China Securities Hong Kong Stock Connect Internet Index rose about 80% in this range; since February, the Hong Kong stock internet sector fell back into a pullback. The biggest retracement of the index from its high at the end of January to the end of January once exceeded 20%.
As to why the Hong Kong stock Internet sector has been adjusted since February, the Hong Kong Stock Connect Internet ETF fund manager Tian Shimon told the Broker China reporter that if the “2+1" analysis framework is used to understand the Hong Kong Stock Connect Internet sector, that is, China's fundamentals, overseas liquidity, and superimposed policy analysis, then from this framework, the direction of improvement in China's fundamentals and overseas liquidity is basically determined, but expectations will inevitably go a little faster than fundamentals. When the facts fall short of expectations, some twists and turns will occur.
On the one hand, when the economic pulse recovered after the epidemic was released, some investors made early profits; on the other hand, the January US CPI announced in early February once again exceeded expectations by 16 bps year over year (forecast value 6.24%, actual value 6.4%), causing the market to worry about the extent of interest rate hikes. Under the short-term turmoil caused by these two factors, the Hong Kong Stock Connect Internet began to decline.
In recent trading days, the Hong Kong stock internet sector has gradually begun a steady recovery, rising more than 12% from its low on March 15 to March 24.
There are both allocated funds and transactional investors
It is worth noting that whether the market rose in January or the market pullback in February and March, the share of the Hong Kong Stock Connect Internet ETF continued to grow. Among them, the share of Hong Kong Stock Connect Internet ETFs increased by 993 million shares in January and 3.845 billion shares since February, with a total increase of 4.838 billion shares, a growth rate of nearly 90%.
In addition to the Hong Kong Stock Connect Internet ETF, the fund shares of related products such as Hang Seng Internet ETFs, Hang Seng Technology ETFs, and Hang Seng Index ETFs have all seen some increase this year.
Which funds or types of investors are continuing to subscribe? Tian Ximeng explained to the brokerage firm China reporter that the market is divided into long-term allocation type and trading type investors. Long-term allocation investors prefer to buy ETF shares directly on the market, and transactional investors also prefer to buy ETF shares on the market. “We have seen both active subscriptions from allocation investors and positive transactions from transactional investors, as can be seen from the increasing volume of transactions and the premiums that appear from time to time. And premiums can also attract a group of arbitrators to calm down premiums to reap profits, which has also increased the share of ETFs to a certain extent.” Tian Shimeng said.
Of course, the core reason for this ever-growing share is that investors are optimistic about the future Hong Kong Stock Connect Internet sector. Tian Ximeng pointed out that if the Hong Kong Stock Connect Internet sector is understood through a “2+1" analysis framework, since November of last year, both China's fundamental expectations and overseas liquidity expectations have improved to a great extent, so the Hong Kong Stock Connect Internet market has led the main equity market. Judging from the full-year dimension of 2023, the direction of improvement of these two factors is relatively certain. This is also an important reason why everyone is optimistic about the Hong Kong stock internet sector.
According to Wind statistics, as of March 24, the fund size of the Hong Kong Stock Connect Internet ETF had increased from 3.840 billion yuan to 7.91 billion yuan, an increase of nearly 85% since this year.
The Hong Kong stock internet sector is getting closer to the “batting point”
Looking ahead to the future market, after a retracement of about 20%, what is the current investment cost performance ratio in the Hong Kong stock internet sector?
Some fund managers pointed out that in the context of global economic recovery and the US interest rate hike or end, the return of foreign capital to emerging markets is expected to accelerate. Therefore, the medium- to long-term beta market in the Hong Kong market is worth paying attention to. In the short term, the Hong Kong stock market may be disrupted by short-term foreign capital, and there will be certain fluctuations. However, looking at the medium to long term, Hong Kong stocks are likely to show a volatile upward trend. In terms of specific industry opportunities, I am relatively more optimistic about tracks such as the Internet and local consumption.
Tianhimon unequivocally pointed out that if the end of October 2022 is what Buffett called a “sweet batting point,” then the current environment is getting closer and closer to this region.
He believes that even if the economy weakens after the pulse of the epidemic, expectations for recovery throughout the year have not changed, and the trend of marginal economic improvement has not changed; even if US inflation is not optimistic in January, the February data has once again returned to the normal forecast range. At the same time, a series of overseas bank risk events that have recently broken out do not rule out the possibility that the Fed will slow interest rate hikes in the future. This may boost Hong Kong Stock Connect's confidence in the Internet in terms of liquidity. Overall, the current Hong Kong stock internet sector is expected to get closer and closer to the “batting point.”
edit/lambor