Source: Caihua News Agency

Hong Kong stocks seem to have started a bit in the last two days.$Hang Seng Index (800000.HK)$On January 23 and January 24, 2024, the two trading days rose by 2.63% and 3.56%, respectively, while the Nasdaq Golden Dragon China Index, which reflects the performance of Chinese securities, rose 4.84% on the evening of January 23 to close at 5,679.02 points, outperforming the Nasdaq index's increase of 0.43% that night.

Moved mainly by various domestic opinions and measures to stabilize the market and some favorable news from the National Standing Committee, the Chief Executive of the Hong Kong Special Administrative Region, Li Jiachao also emphasized that the market is operating in an orderly manner, and there are no unusual phenomena. However, the most direct driving effect is the support of market entry capital, the China Securities Journal reports$BABA-SW (09988.HK)$Founders Ma Yun and Cai Chongxin drastically increased their holdings of Ali shares, driving$Alibaba (BABA.US)$US stock prices surged 7.85% on January 23, which also strengthened the market's confidence in Chinese securities and Chinese stocks.

The news that offshore capital is helping may also drive the offshore RMB exchange rate against the US dollar to rise. The exchange rate against the US dollar has surpassed 7.18. See the chart below. A week ago, the offshore RMB was still above 7.23 against the US dollar — Note: the lower the value, the less offshore RMB can be exchanged for 1 US dollar, which means that the offshore RMB is stronger against the US dollar.

With the support of this favorable news, will Chinese stocks and Chinese securities be at an inflection point?

Major stocks are financially stable and undervalued

Currently, the Hang Seng Index, which often affects the performance of Hong Kong stocks, and$Hang Seng TECH Index (800700.HK)$Major stocks, such as$TENCENT (00700.HK)$, Alibaba,$MEITUAN-W (03690.HK)$The financial situation and fundamentals have not changed much.

i.e$BIDU-SW (09888.HK)$Recently, due to a foreign media report taken out of context, the stock price suffered a severe drop.$Baidu (BIDU.US)$The management made quick clarifications, and the foreign media also made low-key corrections, but they were still unable to restore market confidence.

In fact, from a fundamental point of view, Baidu's performance in the first three quarters of this year is still quite steady.

The Group's main revenue and profit source is still traditional search engines. Its online marketing revenue increased by 6%, 15%, and 5% respectively in the first three quarters of this year, maintaining positive growth. The adjusted net profit of Baidu's core business increased by 38.49%, 41.20%, and 20.62% year-on-year respectively in the first three quarters of this year, while$iQIYI (IQ.US)$Adjusted net profit for the first three quarters was RMB 940 million, RMB 595 million, and RMB 622 million, respectively, up 480.25%, 653.16%, and 232.62% year-on-year, respectively.

While traditional businesses have maintained revenue and profit growth, Baidu's emerging business is also progressing well, and is already on the way to monetizing and turning losses into profits.

At the recent results conference, its management also mentioned that Wenxin had begun to monetize, but it is estimated that it will not be significant in the short term. Wenxin said it will be open to the public and charged from November 1, 2023. Caihua believes that these revenues will be reflected in Baidu's performance from the fourth quarter of 2023.

In addition to generating new business revenue, Baidu's AI products and research will optimize its existing products, improve customer ROI and conversion rates, and help improve Baidu's internal operational efficiency. These benefits may not necessarily be reflected in its performance in the short term, but they will play an incremental role in the medium to long term.

Furthermore, Baidu's intelligent driving business continues to deepen, and orders for completely driverless cars are growing very strongly. Coupled with the increase in AI e-commerce business, the outlook should be good, at least ideal.

Another example$JD-SW (09618.HK)$Efficient inventory turnover and its bargaining power with suppliers give very effective cash turnover efficiency. In the 12 months up to the end of September 2023, JD's inventory turnover period was 30.8 days and accounts payable turnover period was 52.6 days. It can be seen from this that its cash turnover period reached 16.4 days. This is a very valuable asset for retailers. Huge purchase payments plus a life span of more than 10 days can bring great financial flexibility to JD.

As of September 30, 2023, JD held cash and cash equivalents of RMB 115,971 billion, with short-term investments of RMB 126.382 billion. Together, the two reached RMB 2,423.53, with a contract of HK$264.286 billion, which is equivalent to 91.94% of JD's current market value of HK$287.4 billion; including long-term investments, the total amount of cash and investments reached RMB 305.039 billion, accounting for a total of 115.73% of the total market value.

In other words, investors who currently buy JD have JD's cash backing every yuan bid.

Tencent's stock price also continues to be pressured. In addition to the majority shareholders' holdings reduction, it was also due to the sudden release of the “Online Game Management Measures (Draft Draft for Comments)” more than a month ago, causing turmoil in the game industry, causing turmoil in the game industry, bringing Tencent and$NTES-S (09999.HK)$The blockade came as a surprise.

However, the feedback on this recent draft for comments has reached its deadline, and no more manuscripts have been found on the website, or temporarily allayed the market's concerns about the two major game players.

On September 30, 2023, Tencent held RMB 362,459 billion in cash and equivalent, with a short-term investment of RMB 30.476 billion, and a long-term investment of RMB 66,092 billion. The three items together reached RMB 1.06 trillion, which is equivalent to 43.36% of its current HK$2.66 trillion market value, which also provides a safety cushion.

Let's also take a look at Alibaba, which has seen a significant increase in its founding shareholders' holdings. Alibaba is the most aggressive in repurchasing China Science Network shares. At the end of September 2023, Alibaba's cash and short-term investments totaled RMB 574.36 billion, and its long-term investment reached RMB 456.109 billion. The total cash and investment total reached RMB 1.03 trillion, which is equivalent to 75.97% of its current H share market value of HK$1.48 trillion. It can be seen that Alibaba still has enough “ammunition” to buy back and invest.

When did the Hong Kong stock market reach its inflection point?

These are blockbuster stocks that can influence the overall direction of the Hong Kong stock market. The current financial situation is so stable, the operating conditions have not changed much, and the valuation is so low, so when will the inflection point of Hong Kong stocks reach?

Currently, the US dollar is still the most important settlement and transaction currency in the world, and the Federal Reserve's interest rate decision affects global capital trends. Since the start of the interest rate hike cycle in March 2022, the Federal Reserve has raised interest rates by a cumulative total of 5.25 percentage points. High interest rates keep the US dollar strong, and as a result, make capital more careful when investing — the cost of each yuan invested is so high, investment projects must have a much higher return to impress investors. Otherwise, it is less cost-effective to directly hold dollars to earn risk-free interest. This is the main reason why capital has been withdrawn from the low interest rate market and moved towards the US dollar.

It is worth noting that sophisticated investors such as Buffett, and large technology companies with extraordinary ability to “make money”, such as$Apple (AAPL.US)$,$Alphabet-A (GOOGL.US)$,$Microsoft (MSFT.US)$And so on, they all accumulated a lot of cash. Major technology companies are actively making repurchases, mainly because cash is nowhere to be used. In order to reassure shareholders, it is more appropriate to repurchase.

On the other hand, the inflow of currency ETFs in the US continues to rise, which also shows that investors would rather hold coins than hold shares or bonds; these current funds are waiting for an opportunity to enter the market.

Judging from the current capital trend in the Hong Kong stock market, southbound capital continues to be strengthened. See the chart below. The Hang Seng Index continues to decline, while southbound capital is still rising. However, judging from the overall daily trading volume of the Hong Kong stock market, it is not very active, and foreign investment still seems to be on hold.

So what signal is the money waiting for?

According to Caihua News, the first one is probably waiting for practical measures to stimulate the economy.

The central bank governor just announced that it will lower the deposit reserve ratio by 0.5 percentage points from February 5 to provide 1 trillion yuan of liquidity to the market, and reduce the agricultural support small reloan and rediscount interest rate by 0.25 percentage points on January 25, from 2% to 1.75%, and continue to promote a steady decline in the cost of comprehensive social financing.

Driven by this news, Hong Kong stocks suddenly pulled back at the end of January 24. See the chart below.

Second, wait for higher-than-expected economic data to prove that the economy is improving.

Third, wait for the haze of uncertainty to dissipate. These uncertainties include the regional situation, changes in the political and economic situation, obstacles to trade activities, etc.

conclusions

Throughout the history of ups and downs in global stock markets, there is no eternal bull market, and there is no eternal decline. The global economy, situation, and situation are changing every day, yet capital is still there, and it has not left Earth or escaped from space. To attract capital, the most important thing is to have an opportunity to profit. As long as it is proven to the world that enterprises can make money and investment capital is uninvited, as long as the market sees a determination to develop the economy and the prospects are stable and optimistic, the inflection point is not far away.

Editor/Corrine