On February 23, the Shanghai Composite Index achieved 8 consecutive gains, recovering all of its losses during the year. Market activity and liquidity increased dramatically, and the positive trend of going long was transmitted to Hong Kong stocks.

In the first trading week after the Spring Festival, southbound capital continued to make net purchases of Hong Kong stocks. During that time, there was a net inflow of HK$20 billion in Hong Kong stocks. The longing sentiment continued to recover. The three major indices of Hong Kong stocks have been rising for three consecutive weeks, and the decline gradually narrowed during the year.

The high-dividend sector led the way, and Hong Kong stocks faced a prolonged backlash

The first trading week after the Spring Festival came to an end, and the three major indices of Hong Kong stocks rose for three consecutive weeks. Since bottoming out at the end of January, the three major indices of Hong Kong stocks have rebounded by more than 10%, and the Hang Seng Technology Index led the world's major indices with a 13% increase.

Among the constituent stocks of the Hang Seng Index, Ctrip Group, CNOOC, CNPC, and NetEase have all increased by more than 20% year to date, while the stock prices of companies such as China Shenhua, China Merchants Bank, China Unicom, and China Resources Electric Power have all increased by more than 10% during the year.

Although the Hang Seng Index has not recovered from its decline during the year, the stock prices of some constituent stocks have repeatedly reached new highs. For example, Ctrip's revenue for the full year of 2023 increased by 122% year on year, Hong Kong stock prices continued to reach record highs, capital sought high dividend sectors, and stock prices such as CNOOC and China Shenhua continued to hit new historical highs.

Judging from ETF performance, the trend of Hong Kong stock themed funds is divided. The Hong Kong Stock State-owned Enterprise ETF, which tracks the Mainland State-owned Enterprises Index, and the Hong Kong Stock Dividend ETF, which closely tracks the high-dividend index, all rose by more than 9% during the year, and the performance was even better than the Nasdaq 100 Index.

Furthermore, Hong Kong stock ETFs such as Hong Kong Stock Connect Financial ETF, H share ETF, and Hang Seng Consumer ETF all achieved positive returns during the year.

In response to the recent rebound in Hong Kong stocks, Zhao Xiancheng, fund manager of the Overseas Investment Department of Bosch Fund, said that this wave of rebound is mainly due to several reasons. First, the securities industry supervisory line, Wu Qing became the chairman of the Securities Regulatory Commission to express the policy direction of supporting marketization and protecting small and medium-sized investors; second, the implementation of the policy of reducing LPR by 25 bp in excess of expectations on February 20; third, the recovery of basic data such as consumption during the Spring Festival holiday season, and trading on data such as Spring Festival box office, travel, and wine travel.

The Hong Kong stock market rebounded during the holiday season, and the rebound trend continued after the holiday season. Xing Cheng, manager of Hang Seng Qianhaigang Stock Connect Select Hybrid Fund, analyzed that the main factors supporting this round of Hong Kong stock rebound include policy support continuously releasing positive signals and consumption data during the Spring Festival holiday. Together, these factors boosted market risk appetite and investor sentiment.

It is worth noting that pharmaceutical and technology-themed funds such as Hang Seng Biotech ETF, Hong Kong Stock Innovative Drug ETF, Hang Seng Healthcare ETF, and Hong Kong Stock Technology ETF still fell by more than 10% during the year, making them one of the worst performing assets this year.

ETFs continue to attract gold, and the enthusiasm for southbound capital continues unabated

Southbound Capital's enthusiasm for buying Hong Kong stocks has not diminished. Since February 7, it has continued to buy Hong Kong stocks on a net basis for 7 consecutive trading days.

In the first trading week after the Spring Festival, southbound capital increased its purchases of Hong Kong stocks. On February 23, a net purchase of Hong Kong stocks of HK$6.445 billion in a single day was the second time in the year. During that time, a net inflow of HK$20 billion into Hong Kong stocks continued.

In terms of capital flows, the Hang Seng High Dividend ETF became the cross-border ETF with the highest net capital inflow this week, receiving a total net inflow of 318 million dollars. Its short-term popularity even surpassed that of the NASDAQ Index ETF.

Since the beginning of the year, whether it is A-shares or Hong Kong stocks, the high-dividend sector has taken the lead. It is currently the best-performing theme strategy in the market, and capital is also continuously increasing its layout for the high-dividend sector. For example, the Hang Seng High Dividend ETF has recently risen rapidly in size, reaching a new record high.

In addition, Hang Seng Technology ETF, Hong Kong Stock Exchange ETF, Hong Kong Stock Dividend Index ETF, and Hang Seng Pharmaceuticals ETF all received net capital inflows this week.

It is easy to find that in addition to chasing high dividend themes such as dividends, capital has not stopped increasing positions on ETFs such as Hang Seng Technology and Hang Seng Pharmaceuticals, which continue to decline, showing a “falling more and more buying” trend.

Looking at the whole year, Hang Seng Technology ETF and Hang Seng High Dividend ETF received the highest net capital inflows during the year, receiving net inflows of 1,354 million yuan and 288 million yuan respectively.

Institutions: The rebound in the Hong Kong stock market may continue to some extent

Recently, although Hong Kong stocks have rebounded, their performance has not turned red during the year.

How long is the rebound in Hong Kong stocks continuing? According to Zhao Xiancheng's analysis, overall, the rebound in the Hong Kong stock market may be sustainable, but there are still a few points to be observed. The disturbances in the timing of the Federal Reserve's interest rate cuts, the strong consumption data during the Spring Festival requires observing the phenomenon and sustainability of volume increases and decreases, and whether a strong fiscal policy has been introduced.

“The key to the sustainability of the rebound in Hong Kong stocks is a positive combination of economic growth expectations, liquidity and risk appetite to respond to corporate profit expectations, risk-free interest rates, and equity risk premiums in the valuation system.” Xing Cheng believes that compared to the current environment, the core of the subsequent rebound in Hong Kong stocks remains a symptomatic and strong fiscal policy to further restore medium- to long-term confidence among residents and enterprises. This is also the key to effectively solving the credit contraction problem, which is the main challenge facing China's short-term growth. As the “two sessions” approach, the market has high expectations for fiscal measures, including issuing 1 trillion dollars of special treasury bonds, increasing PSL efforts, and increasing the deficit rate, that is, increased leverage by the central government. If stimulated by corresponding macroeconomic support policies, economic growth expectations can be raised, and in line with the marginal improvement in liquidity and risk appetite in the external environment, I believe the rebound in Hong Kong stocks is worth looking forward to at that time.

Looking ahead to future investment opportunities in Hong Kong stocks, Zhao Xiancheng believes that the most pessimistic moment in the Hong Kong stock market is over, and potential marginal shortfalls are not visible. Hong Kong stocks are expected to continue to slowly fluctuate upward. Since macroeconomic fundamentals and policies are currently unclear, it is recommended that Hong Kong stock investors place a high proportion of their shares on sectors with high dividends and overseas markets, and pay attention to controlling positions, waiting for market demand to continue to pick up and a clear fiscal policy to be introduced, increasing positions and increasing the share of science and technology innovation sectors.

Looking at specific sectors, Zhao Xiancheng is optimistic about the three sectors of high dividends, overseas travel, and scientific and technological innovation. He believes that at present, the country is still in an uncertain growth and policy environment. The high-dividend sector provides definitive returns with stable dividends. Until further obvious policy inflection points are seen, this sector is still the focus of the market; in the process of the game between China and the US, the domestic economy is uncertain, so the logic of going overseas with structural industrial opportunities, growth brings opportunities for valuation increases; from a long-term perspective, productivity changes driven by technological innovation can still cross the macroeconomic cycle, such as semiconductors, software services, consumer electronics, and innovative pharmaceuticals.

Xing Cheng, on the other hand, focuses on three main investment opportunities. One is high-dividend assets with deterministic shareholder returns, including telecommunications, energy, utilities, and finance. In an uncertain growth and policy environment, high-dividend assets can provide a definite return with stable dividends. On a long-term perspective, in a cycle of macroeconomic uncertainty such as a continuous decline in interest rates and a slowdown in long-term economic growth, high-dividend assets still have high relative investment value in an environment where assets are scarce. The second is structural industrial opportunities that benefit from the logic of going overseas, including manufacturing and brand sectors in the industrial, NEV, and consumer industries. Currently, China is in a critical period of economic transformation. A number of outstanding domestic enterprises with technical advantages, scale advantages, and even product power and brand power have emerged. On the one hand, outstanding enterprises can provide a new growth curve for enterprise development, and on the other hand, they can also effectively make up for the slowdown in growth caused by weak domestic demand. The third is an opportunity for industrial upgrading under the trend of scientific and technological innovation, including sectors such as TMT and biomedicine.

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