Source: Broker China Author: Promise

A reporter from a brokerage firm in China noticed that the Hong Kong stock market has almost become a place where fund managers' beliefs have been shattered this year. Most of the heavily-held stocks in the Hong Kong stock market fell to the level of October last year, but the structural opportunities in the Hong Kong stock market are also particularly remarkable. Some are highly suited to this year's sluggish consumption and the main line of artificial intelligence (AI), and have also become one of the few types that fund managers are carrying in the Hong Kong stock market. Industry insiders believe that the Hong Kong stock market is currently very attractive in terms of overall valuation. Stocks with high cash value and stocks with high flexibility may be the first choice for layout.

Hong Kong stocks are gathering opportunities in the midst of fiasco

Yesterday, Hong Kong stocks bottomed out and rebounded across the board. On the market, science and technology online stocks and pharmaceutical stocks showed strong performance. Tencent, Xiaopeng, Bilibili, Kuaishou, and Meituan, which had heavy fund holdings, rose 16%, Meitu rose about 8%, and Mingchuang Premium rose about 5%.

In this round of market adjustments, the level of danger in the Hong Kong stock market far exceeds that of A-shares. In particular, most stock prices have fallen below the level of October 2022 for Hong Kong stocks, science, and pharmaceutical stocks, which are heavily traded by growth-style fund managers. Also, because the depth of adjustments in the Hong Kong stock market has far exceeded expectations, structural opportunities in the Hong Kong stock market have also become one of the few benefits fund managers can obtain in the Hong Kong stock market.

Among pharmaceutical stocks, Genting Xinyao, which has almost no fund manager holdings, is the most powerful Hong Kong pharmaceutical stock recently. Since the end of June this year, Genting Xinyao's cumulative stock price has increased by more than 80%. Among the technology AI targets, only Meitu, which is owned by China Southern Fund and Guolian Fund, is the Hong Kong Science and Technology Network stock that stands out in the stock price in 2023. Corresponding to this, most of the Chalk, Kuaishou, Bilibili, and Weimoeng Group, which are heavily held by fund managers, are close to or have already fallen below the stock price level at the end of October 2022.

Among consumer targets, the fund manager's heavy holdings of Hong Jiu Fruit, Helens, Nai Xue's Tea, and Bubble Mart made the fund manager who held such consumer stocks feel sad after experiencing a serious decline. Take Hong Jiu Fruit, which the fund manager has heavily held, for example. In the last six months, its stock price has plummeted by more than 80% in the last six months. In the first quarter of this year, many Hong Kong-themed fund products that still hold Helens and Nai Xue tea have been heavily traded, after experiencing serious losses, according to newly disclosed fund reporting data, show that most of them have already bid on related consumer stocks operation.

However, the contrast between the structural opportunities of Hong Kong stocks and the market is also particularly obvious. At the same time as high consumption has plummeted, the cumulative stock price increase of Mingchuang Premium, which is characterized by low-end small consumption, has reached 1.6 times since this year, making it one of the few stocks where some fund managers hedge risks in the Hong Kong stock market. Some fund managers bluntly stated that this just reflects the current slump in consumption. “Taking a fruit category in Hong Kong stocks as an example, the factor behind the sharp drop of 80% in the six-month period is that the company's core business is durian. This is a typical high-consumption variety in the fruit industry. Some tea drinks have not performed well The reason is also because the company's positioning is high “End Market”.

Long-term capital is focusing on Hong Kong stocks

However, there is no situation where any market only rises or falls, nor does it have a pattern of only falling and not rising. After experiencing a serious decline in stock prices, the investment opportunities in the Hong Kong stock market are actually too intense, and there is more room for odds.

In an interview with a Chinese reporter from a brokerage firm, a fund manager in South China said that current investment in the Hong Kong stock market should focus on stocks with high cash value. In the cold winter of the market, having sufficient cash and cash flow creativity has undoubtedly enabled many companies that have experienced sharp declines to have more growth potential and flexibility after the economy recovers.

In particular, news reports are also cooperating with the Hong Kong stock market, which is currently seriously overfalling. According to information, Hong Kong Chief Executive Li Ka-chao said that recently the “Task Force on Promoting Stock Market Liquidity” has been holding additional meetings to study ways to improve the liquidity of Hong Kong stocks, and will submit a recommendation report to him as soon as possible. Furthermore, recently, many companies in the key constituent stocks of the Hang Seng Technology Index have continued to repurchase, demonstrating the company's confidence in its long-term investment value.

In this context, more and more long-term capital is also actively going south into the Hong Kong stock market. Take pharmaceutical stocks, which have been severely overdeclined, as an example. In terms of capital inflows, the latest capital inflows and outflows to the Hong Kong Stock Connect Pharmaceutical ETF have remained flat. Looking at it over a longer period of time, in the past 5 trading days, it has “sucked in gold” a total of 22.827 million yuan. It is worth noting that the valuation of the China Securities and Hong Kong Stock Connect Medical and Health Composite Index tracked by the fund is at a historically low level. The latest net market ratio PB is 2 times, lower than the index's time of over 83.53% in the past year, and the valuation cost performance ratio is outstanding.

Yi Fangda's China Securities Hong Kong Stock Connect Pharmaceutical Fund pointed out in the interim report that the Hong Kong stock pharmaceutical sector covers many pharmaceutical companies, pharmaceutical outsourcing companies, medical device companies, and companies related to Internet medical care and medical services. Stock prices are greatly affected by changes in industry policies and changes in overseas interest rates. In the long run, the demand for old-age care and health care brought about by an aging population and consumer consumption upgrades will drive the continuous growth of the pharmaceutical industry. Under the overall tone and top-level design that encourages innovative drug research and development, and under the strong support of the listing financing system for innovative pharmaceutical companies, the Hong Kong stock pharmaceutical sector will have a lot of room for development, and its long-term investment and allocation value is worth paying attention to.

Subsequent sectors with high elasticity in Hong Kong stocks are very attractive

Regarding the next stage of investment in the Hong Kong stock market, most Hong Kong-themed fund managers believe that the market has bottomed out, and that valuation appeal has greatly increased.

Zhao Xiancheng, fund manager of Bosch Hong Kong Stock Connect, believes that in the first half of 2023, America's economic resilience, layoffs, cost reduction and efficiency, combined with the trend of the artificial intelligence industry, made the better profit performance of US technology leaders attract more global capital. As a result, China and the US experienced a misalignment between macro-cycle and stock price performance in the first half of 2023. However, the macroeconomic direction of America's decline and domestic recovery over a long period of time is certain. It's just that America's soft landing and China's slow climb will cause short-term declines in capital transfers, but the sustainability of maintaining high valuations for US stocks under high interest rates should not be strong. The valuation of Hong Kong stocks is still below the 10-year average, and profits of Hong Kong stocks have continued to improve, and valuations will also have opportunities to improve. The fund layout is dominated by Hakuba, the leader in growth. The Internet, new energy vehicles, and CXO (pharmaceutical outsourcing services) are still promising three growth directions. Replace other industries and increase inventories at the same time Adjust positions in related industries nearing the end.

Zhou Hanying of Jingshun Great Wall believes that after a sharp correction, Hong Kong stock valuations have fallen below last year's historic low, and the dynamic price-earnings ratio of the Hang Seng Index has once again returned to the standard deviation level of minus 1 times in the past ten years. It already partially reflects weak domestic recovery expectations. The medium- to long-term layout value is prominent. Continuing attention to domestic economic trends, and referring to global capital allocation experience, the excess benefits of global “dumbbell” allocations have been obvious since this year. In a context where both the numerator and denominator are under pressure, we continue to be optimistic about the “dumbbell” strategy of high dividends plus growth to cope with market changes and strive to give investors steady returns. First, focus on central state-owned enterprises with high dividends, undervaluation, low capital expenditure, and an expected increase in return on net assets. Second, focus on TMT (Technology, Media, and Communications) and structural investment opportunities such as the digital economy and artificial intelligence empowering industry transformation. Finally, from a medium-term perspective, focus on flexible varieties where stock prices have fallen too far, including the Internet with sound fundamentals and some consumer goods, such as home appliances, sportswear, and medical services.

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