Source: Broker China
Author: Wu Qi
Mainland capital is wantonly scavenging Hong Kong stocks.
After three days of continuous growth, Hong Kong stocks ushered in adjustments. On November 7, the Hong Kong stock market fluctuated and weakened throughout the day. The Hang Seng Index closed down 1.65%, and the Hang Seng Technology Index closed down 1.04%. The market declined more and less. On the market, sectors such as pharmaceutics, information technology, consumption, coal, and aluminum strengthened. Among them, pharmaceutical biotechnology stocks pioneered the pharmaceutical industry, and Jianshi Technology rose more than 11%.
However, southbound capital's net purchase of Hong Kong stocks was 9.567 billion yuan on the same day, the highest in the past two months. Mainland capital's interest in Hong Kong stock allocation demand did not decline due to the sluggish market; on the contrary, it increased.
In the short term, institutions generally believe that risk appetite will improve, global capital will return to emerging markets, assets that have declined a lot in the previous period may experience respite, and mainland capital will increase its allocation to Hong Kong stocks. However, some institutions cautiously believe that considering the current position of Hong Kong stocks and changes in the external environment, a reversal of the trend still requires more policy and improved fundamentals.
The bottom of Hong Kong stocks rebounded
After hitting a new low in the new year on October 24, the Hong Kong stock index recently experienced a phased rebound. The Hang Seng Index rose 3.26% this month, and the Hang Seng Technology Index rose 7.89%. Since this year, the declines in the Hang Seng Index and Hang Seng Technology Index have narrowed to 10.67% and 1.77% respectively.
Specifically, the NEV sector, semiconductors, and innovative pharmaceuticals sectors had the highest rebound. Among well-known companies, Xiaomi Group, China Biopharmaceuticals, Geely Auto, etc. rose more than 10% in the past 5 days, while Shunyu Optical Technology, Li Ning, JD Health, Xinyi Solar, Tencent Holdings, Longhu Group, Hong Kong Stock Exchange, and Ali Health rose more than 5% in the past 5 days.
“Since the Hong Kong stock market experienced a continuous net outflow of capital in the early period, foreign capital may return in the future under the catalytic influence of multiple policies, driving a phased upward trend in the Hong Kong stock market.” According to China Merchants Fund's analysis, the recent rebound in Hong Kong stocks may be driven by the following reasons: the recent Fed interest rate meeting was dovish overall, with interest rate hikes suspended in November; the recent weakening of US economic data to ease market concerns about further tightening liquidity; Sino-US relations have gradually improved, and China and the US are expected to have closer exchanges in the future; and macroeconomic policies have been implemented at the micro level, further promoting domestic economic stability and improvement.
Recently, whether it's A-shares or Hong Kong stocks, some themed sectors have been catalytically stimulated by news, and have experienced an overdecline and rebounded, driving the index to rebound. For example, due to the fact that sales of new models have exceeded expectations and the recent acceleration of progress in intelligent driving technology, the popularity of the NEV sector has increased markedly; incidents such as diet pills and shingles have catalyzed innovative drug investment logic; the resurgence of electronics consumption and the bottoming out of the mobile phone channel inventory cycle have catalyzed a rebound in consumer electronics and other sectors.
In terms of ETFs, the Hong Kong Stock Technology ETF, Hong Kong Stock Connect Technology ETF, Hong Kong Pharmaceutical ETF, and Hang Seng Pharmaceutical ETF have all increased by more than 5% in the past 5 days.
The more southbound capital falls, the more you buy
As for institutional capital, compared to A-shares, there are more target options for investing in Hong Kong stocks, and the valuation of Hong Kong stocks is lower. Therefore, even though there were more locked capital in the early stages, there was still a steady stream of buying Hong Kong stocks from the south.
With the recent emergence of many positive factors in the market, mainland capital has increased the layout of Hong Kong stocks. Even though the Hong Kong stock market fluctuated throughout the day on November 7, there was a net inflow of southbound capital into Hong Kong stocks of nearly 10 billion yuan, the highest in the past two months.
Judging from the three-quarter report of domestic public funds, although Hong Kong stocks continued to decline in the third quarter of 2023, their valuation advantage and strategic allocation value attracted more funds, and the number of funds invested in Hong Kong stocks did not decrease but increased. Furthermore, Hong Kong stock funds generally raised their stock positions, and their positions were at historically low levels. Looking at the position structure, statistics from Haitong Securities show that public funds still adopted a dumbbell strategy to invest in the Hong Kong stock market in the third quarter. The growth side switched from technology to medicine, and the high dividend side added finance in addition to energy. From an industry segment perspective, funds mainly increased their holdings in Hong Kong stocks, pharmaceuticals, biotechnology, banks, and non-bank finance, and mainly reduced their holdings in Hong Kong stock media, communications, and automobiles.
The changes in the shares of ETFs that are updated on a daily basis are more indicative of the continuous influx of capital into Hong Kong stocks.
The data shows that although the price of Hong Kong stock ETFs has declined since this year, the trend of domestic capital using ETFs to continue to increase their holdings in Hong Kong stocks and buy more as they fall has not changed. Although many ETFs that track the performance of Hong Kong stocks were still in the loss stage during the year, their scale has repeatedly reached record highs.
According to Wind data, the Hang Seng Internet ETF, Hang Seng Technology Index ETF, Hong Kong Stock Connect Internet ETF, and Hang Seng Technology ETF have all grown by more than 1 billion yuan in scale since November. Among them, the Hang Seng Internet ETF, the Hang Seng Technology Index ETF, and the Hong Kong Stock Connect Internet ETF have repeatedly set new records for the highest shares.
In addition, pharmaceutical and biological industry-themed funds such as the Hong Kong Stock Innovative Drug ETF and the Hang Seng Medical ETF have also received a large amount of capital subscription. For example, the GF China Securities Hong Kong Innovative Drug ETF has increased its share by more than 1 billion shares in the past 8 trading days, and capital raising efforts are strong.
With the phased rebound of Hong Kong stocks, the Hang Seng Technology Index ETF, Hang Seng Technology ETF, and Hong Kong Tech 50 ETF have reversed their decline and achieved positive returns since this year. The pharmaceutical-biotechnology-themed ETF, which had the worst performance during the year, recovered some of its losses, and the decline narrowed further.
Over a longer period of time, the Hang Seng Internet ETF, Hong Kong Stock Connect Internet ETF, Hang Seng Medical ETF, Hang Seng Technology Index ETF, and Hang Seng Technology ETF all received net subscriptions with a share of more than 10 billion shares during the year. The Hong Kong Stock Technology 50 ETF and the Hong Kong Stock Innovative Drug ETF all received net subscriptions with a share share of more than 5 billion shares.
An industry insider said that the reason southbound capital continues to pour into Hong Kong stocks is mainly affected by a number of factors: first, the average valuation of Hong Kong stocks is low, which is at an all-time low; second, a series of economic support measures adopted by the mainland are expected to boost the performance of mainland red chip stocks; third, the Fed's interest rate hike cycle is coming to an end, risk appetite is improving, and global capital will return to emerging markets. Assets that have fallen a lot in the previous period may experience resurgence. Mainland capital may be placed ahead of schedule; fourth, the recent stabilization of the RMB exchange rate, depreciation pressure has lessened, and expectations of a rise in Hong Kong stocks are strong.
Improvement of risk appetite in Hong Kong stocks
Looking ahead, institutional expectations for Hong Kong stocks have also clearly reversed.
Bosch Fund believes that as the domestic economy stabilizes, profit expectations for Hong Kong stocks have gradually improved, the suppression of US debt has recently eased, sentiment has rebounded from a low level, southbound capital has also picked up slightly, and the risk appetite of Hong Kong stocks has improved.
Zhang Yuxiang, fund manager of the Quantitative and Derivatives Investment Department of Penghua Fund, believes that various factors favor the Hong Kong Stock Connect pharmaceutical sector, and that the current time may be a better time to lay out the Hong Kong Stock Connect pharmaceutical sector during the year.
Looking ahead to the future sustainability of Hong Kong stocks, China Merchants Fund believes that it is necessary to pay close attention to the implementation of the subsequent domestic “steady growth” policy and whether there is an upward inflection point in economic data.
“Despite rising sentiment, some investors still have doubts about this. After all, there have been many short-lived rebounds this year.” China Financial Corporation, on the other hand, showed a cautious attitude. Considering the current position of Hong Kong stocks and changes in the external environment, it is not difficult to see a certain degree of rebound. However, what was more reflected in the early stages was a restoration of risk appetite, and the reversal of the trend still required more policies and improved fundamentals.
CICC believes that in the short term, there is room for a rebound and repair in the market, especially targets that have had large declines, are more flexible, and are sensitive to interest rates, such as biomedicine, technology, and the Internet. However, the longer-term and sustained upward momentum may still require more policy support to form a virtuous cycle and a positive upward trend.
Editor/jayden