This article is from China Securities News, written by Huang Shuhui.
Since the beginning of this year, the Hang Seng Index has accumulated a considerable increase, and even broke through the highs of the last bull market, whether Hong Kong stocks can continue the upward trend has become the focus of market attention. Hong Kong stocks fell late on the 19th to a certain extent affected market sentiment.
At present, most fund managers continue to sing long Hong Kong stocks. They believe that from a global point of view, the Hong Kong stock market is still a valuation depression, and corporate earnings growth continues to improve. From the capital point of view, whether the enthusiasm of "southward funds" continues or the return of overseas funds will support the market. However, many fund managers said that the "Davis double-click" phase brought about by the increase in earnings superimposed valuation may be coming to an end, the second half of the market is mainly driven by corporate earnings growth, and the overall volatility of the short-term market will be strengthened.
The valuation of Hong Kong stocks still has a comparative advantage.
The Hang Seng index has continued to rise in the first few trading days since October, breaking through the bull market peak of 2015. However, at the end of the 19th, the index fell for a time and finally closed at 28159 points.
From the fund point of view, the vast majority of fund managers are still optimistic about the future performance of Hong Kong stocks. One of the main reasons is that despite considerable gains in the previous market, valuations are still "inexpensive". Chen Liqiu, investment director of Changan Fund, said that if horizontal comparison, the price-to-earnings ratio of the Hang Seng Index is about 12 times, and the price-to-book ratio is about 1.2 times. Globally, the Hong Kong stock market remains a valuation depression, thus driving continued capital inflows. In vertical comparison, the valuation of the Hang Seng Index is only slightly higher than the historical median, while the valuation of the US stock market is well above the historical median.
Xu Cheng, fund manager of Guo Fu University China, also believes that although there has been a good increase in the Hong Kong stock market, the valuation is not expensive, and the price-to-earnings ratio is lower than that of the United States and Europe.
Wanjia also said in its investment strategy in the fourth quarter that Hong Kong is still one of the cheapest markets in the world. The S & P 500 trades at 23 times earnings, the Nasdaq trades at 39 times earnings, and the main stock indexes in the UK, France and Germany are valued at between 17 and 24 times earnings. The price-to-earnings ratios of India and South Korea are 23 and 16 times respectively, so Hong Kong stocks are still inexpensive by comparison.
In addition to recognizing the valuation advantages of the Hong Kong stock market, fund managers are more optimistic about the profit prospects of Hong Kong listed companies.Chen Liqiu said that the performance growth of Hong Kong listed companies has rebounded sharply this year and is expected to achieve an annualized growth rate of about 15 per cent in the next two years.
The trend of capital inflows to the south has not changed.
Based on the continued optimism on the Hong Kong stock market, the inflow of "southward capital" has been raised to a higher level again. According to the data, as of the 19thSince October, there has been a net inflow of 17.804 billion yuan into Hong Kong stocks, with an average daily inflow of 1.978 billion yuan, which has entered a relatively high daily buying range of "southbound funds" since 2017.
The performance of the Hong Kong stock market has led to a rapid rise in the size of funds in Shanghai, Hong Kong and Shenzhen. In addition to the asset expansion brought about by the rising market, more and more fund companies are launching Shanghai, Hong Kong and Shenzhen products, which in turn inject incremental capital into the Hong Kong stock market.
The trend of fund companies issuing Shanghai, Hong Kong and Shenzhen funds is still continuing, and Shanghai, Hong Kong and Shenzhen funds have been launched one after another. A total of three Shanghai, Hong Kong and Shenzhen funds were established in the third quarter. According to the approval progress of the fund raising application, there are currently more than 50 Shanghai, Hong Kong and Shenzhen funds waiting for approval.
With regard to the liquidity of the Hong Kong stock market in the fourth quarter, Xu Cheng, a fund manager at Guofu Greater China, said that the Fed may continue to raise interest rates in the fourth quarter and gradually push forward the "shrinking table." The European economy is expected to continue to recover. As a result, another massive global monetary easing is unlikely. However, the funds of Hong Kong Stock Connect are still of concern, and "southward funds" may still provide support for the cheap Hong Kong market.
Apart from the unabated enthusiasm for "southward capital", foreign investors have also entered the Hong Kong stock market on a large scale recently. A number of fund managers mentioned the strong performance of Hong Kong stocks during the National Day holiday. Due to the suspension of trading through Hong Kong Stock Connect, Hong Kong stocks rose sharply without the support of mainland funds. This shows from one side that overseas funds are optimistic about the Hong Kong stock market.
According to the latest capital flow data from EPFR, after excluding the inflows into the mainland,Inflows into the overseas Chinese stock market last week totaled about $1.1 billion, the highest level since the last bull market in mid-2015.
CICC strategists believe that the resurgence of overseas capital into the overseas Chinese stock market and the highest level in two years may also be a direct factor driving the market higher. The role of the sharp increase in overseas capital inflows is not limited to driving up the market in the short term, but has a more far-reaching impact. If the return of overseas capital is sustained, it will become another new driving force in addition to the continued southward flow of mainland funds, thus promoting the revaluation of the Hong Kong stock market.
Xuan Wei, chief strategist at Huaxia Fund, believes that in the next few months, the undervalued advantage of Hong Kong stocks and the continued inflow of domestic and foreign capital into Hong Kong stocks will help to support the Hong Kong stock market to continue to rise, and the Hong Kong stock market will remain positive in the medium term after short-term consolidation. At the same time, we should also guard against the possible risk of liquidity tightening.
The market may move into the second half.
With the rise in market valuations, the overall valuation of Hong Kong stocks has exceeded the historical central level, and some fund managers have judged that the Hong Kong stock market may turn into the second half, that is, driven by valuation expansion and earnings growth, to corporate profits as the main driving force.
Wanjia funds said that the first wave of bull market brought about by the superimposed valuation of Hong Kong stocks' short-term earnings has been fully released. In the short term, the marginal improvement in supporting factors is slowing. The Fed announced the start of the contraction process in October, and the probability of raising interest rates in December rose again, which could have a negative impact on market sentiment in the short term. From a valuation point of view, the Hang Seng Index rebounded from the bottom of the valuation of about 7-8 times to the upper position of the center, and the overall volatility of the market in the short term will be strengthened. The trend of Hong Kong stocks in the shock in the fourth quarter will be obviously divided, and the systemic rise brought about by valuation and earnings resonance may come to an end temporarily and turn to a structural bull market. The market is expected to seek plates and industries with a certain upward elasticity and a high margin of safety.
Chen Liqiu, investment director of Changan Fund, said that given that the overall market valuation of Hong Kong stocks has been slightly higher than the historical median, although there is still room for further rise, it is relatively limited. After the "Davis double-click" market, the main driving force of the next stage of the market will come from the performance improvement of listed companies. From the perspective of income-risk ratio, the sectors that are optimistic about the next stage are mainly insurance, banking, medicine, TMT and so on. Cyclical stocks need to be treated differently, and the slowdown in downstream demand in some industries may lead to a slowdown in future performance growth. (editor: Hu Min)