Guotai Junan released a research report saying that both reality and expectations were weak, and Hong Kong stocks once again fell to a low point. Over the past year, the trend of Hong Kong stocks was affected by both internal economic growth and external liquidity factors. In the next one to two quarters, under the combined impetus of US bond interest rates peaking and domestic policy strength, there may be a restorative rebound similar to early 2023. Highly resilient and interest-rate sensitive industries, such as innovative pharmaceuticals, electronics, semiconductors, internet retail, automobiles, and gold, will benefit more. However, in the medium to long term, whether it is possible to break the game and turn a rebound into a reversal is yet to be promoted by more policies. Optimistic about high-dividend varieties, such as telecom operators, energy, and utilities.

Guotai Junan's views are as follows:

Both reality and expectations were weak. Hong Kong stocks fell to a two-year low, and telecom operators' performance was relatively resistant to decline.

China's GDP data for the fourth quarter was released last week, which was slightly lower than market expectations. Major indices of Hong Kong stocks all fell after the data was released. Furthermore, MLF interest rates remained on hold in January, and expectations of interest rate cuts fell short. Overseas, retail sales in the US surpassed expectations in December, and expectations of the Federal Reserve's interest rate cut have cooled down. The Hong Kong stock Hang Seng Index fell 2.7% last week, the Hang Seng State-owned Enterprises Index fell 3.7%, and the Hang Seng Technology Index fell 6.2%. On the sector side, telecom operators' performance was relatively resistant to decline.

The trend of Hong Kong stocks in 2023 is affected by a combination of internal and external factors.

The main reasons behind the sharp rise in Hong Kong stocks in early 2023 are an improvement in domestic economic expectations, an increase in profit expectations on the molecular side of Hong Kong stocks, and a simultaneous improvement in overseas liquidity on the denominator side. Entering the second quarter, the performance of Hong Kong stocks fluctuated mainly due to downward revisions to expectations that were too high in the previous period. The increase in pressure after the third quarter was due to the slow recovery process of the domestic economy and the tightening of overseas liquidity again, and US bond yields continued to rise. Looking back, interest rates on US bonds peaked and fell in the first quarter of 2024. There is still room for domestic wide currency. There is a certain rebound window for Hong Kong stocks, but the trend after the rebound still depends on the economic recovery process, otherwise it is difficult to form a reversal trend.

Under the benchmark situation, the bank believes that Hong Kong stocks are gradually bottoming out, and there is room for a short-term rebound, but the reversal still needs to be promoted by policy.

In the next one to two quarters, it will not be difficult to see a restorative rebound similar to the beginning of 2023, driven by a combination of US debt interest rates peaking and falling, domestic policy strength, and improvements in Sino-US relations. Looking at the medium to long term from one to three years, whether the game can be broken, and the rebound turns into a reversal, more policies need to be promoted.

Investment strategy: The short-term rebound focuses on the growth of Hong Kong stocks and increases dividends in the medium to long term.

It is expected that intensive policy expectations for the next one to two quarters, a slowdown in US debt interest rates, and an easing of the geographical situation may all contribute to a wave of restorative rebound. At this time, Hong Kong stocks may be more flexible than A-shares, and highly elastic and interest-rate sensitive industries, such as innovative pharmaceuticals, electronics, semiconductors, internet retail, automobiles, and gold, may all contribute to a wave of restorative rebound. The medium- to three-year term proposal continues to focus on domestic dividend assets associated with steady growth, and gold's response to domestic and foreign disruptors. Optimistic about high-dividend varieties, such as telecom operators, energy, and utilities. 1) Focus on domestic dividend assets related to steady growth, and gold's response to domestic and foreign disturbances. Optimistic about high-dividend varieties, such as telecom operators, energy, and utilities. 2) US recession trading expectations are likely to occur, but a recession may be difficult to become a reality. It is recommended to lay out export chains and other related products in anticipated recession transactions. 3) Focus on innovative drugs, electronics, etc. in the medium term.

Risk factors: Domestic steady growth policies fell short of expectations, and US core inflation exceeded expectations.

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