Source: Finance Association

Today, the three major indices of Hong Kong stocks fell again. This trend reflects the sluggish market sentiment. As of press release, the Hang Seng Index fell 1.98% to 15005.04 points; the Technology Index fell 2.46% to 3052.82 points.

CICC recently pointed out that some technical indicators are already close to the extreme levels of previous bottoms.

CICC compares various segmented indicators in several dimensions, such as macro and profit, valuation and risk premium, capital, and investor sentiment. It is believed that some current segmentation indicators have reached or even surpassed the market lows of previous rounds.

The first is valuation: the Hang Seng Index is 7.4 times dynamic PE, second only to the 2008 financial crisis and the bottom of the market at the end of October 2022.

Next was the risk premium: it rose to 9.9%, which is comparable to the bottom of October '22.

Finally, short sales accounted for 17.2%, second only to the end of October '22. RSI and exchange transactions were also close to the bottom of the previous few rounds, etc.

Furthermore, judging from the technical level, the support level of the Hang Seng Index is around 14,600 at the monthly level. As a result, the market is supported at current levels, and it is not surprising that there was a certain rebound even after the panic sell-off.

The current environment requires timely and strong financial support

If the experiential rebound that surged and declined several times in 2023 is to continue, a “symptomatic treatment” policy is still needed as a foundation, and timely and strong financial support is needed in the current environment. Since 2023, CICC has emphasized that strong financial support is particularly critical to reviving credit expansion, and this is also important for Hong Kong stocks. The trillion yuan treasury bonds at the end of October 2023 and the central bank's restart of PSL in early January this year are both “symptomatic” directions. However, regardless of the form, sufficient strength is required to achieve total results.

According to estimates, if the broad fiscal deficit pulse in 2024 remains flat and positive compared to 2023, it would correspond to a net fiscal deficit of about 3 trillion yuan, which would roughly correspond to 3 trillion yuan special treasury bonds or 1 trillion yuan PSL. Having learned this, it is not difficult to understand why the market has weakened again since November 2023, when fiscal expectations have weakened, and it is also not difficult to understand why the decline in interest rates on US bonds that exceeded expectations did not have much effect.

External disturbances still exist

CICC pointed out two major external concerns. First, the month-on-month growth rate of retail sales in the US in December 2023 exceeded the market's agreed expectations, weakening expectations of interest rate cuts. Specifically, retail sales in the US increased 0.6% month-on-month in December, higher than the market's consensus expectation of 0.4%. On the industry side, retail sales of motor vehicles increased 1.1% month-on-month, clothing increased 1.5% month-on-month, and department stores increased 3% month-on-month. The resilience of the US economy was still better than market expectations, which led to a partial reduction in interest rate cuts.

Second, Trump won the Iowa Republican Party primary election in the presidential election, causing the market to worry about uncertainty about America's future policy direction.

In summary, there is some technical support at the current point, but the rebound, especially the sustainability, still requires the strengthening of “symptomatic” policies. Technically, overselling and monthly support levels may provide some short-term support to the market, and there is often some resurgence or even rebound after pessimism is vented. However, according to the trend since the end of 2022, whether a sustainable rebound can be formed, it is still necessary to strengthen “symptomatic” policies. In the current environment, large-scale financial support corresponding to leverage from the central government is particularly important for restarting the credit cycle. This is also the key for Hong Kong stocks.

editor/tolk