Market opportunities always accumulate in shocks. Hong Kong stocks have continued to fluctuate recently, is this a good time for layout? Where is the market risk point? Is it worth long-term investment? If you want to layout which areas are better?

China Fund News reporter interviewed Li Xiangjie, executive head of the International Investment Department of Huaxia Fund and selected stock fund manager of Huaxia Hong Kong Stock Exchange, Yu Hao, manager of Guangfa's leading fund in Shanghai, Hong Kong and Shenzhen, qu Yang, former managing director and joint investment director of open source fund, Han Zhenglin, Penghua Shanghai and Shenzhen Hong Kong Internet stock fund, Tao Yifei, manager of Hai Fu Tong China overseas mixed QDII fund, and Zheng Dong, investment manager of Hang Seng Qianhai Fund.

These fund managers agree that this is a good time to lay out, with the Hang Seng Index now 10 times PE, where only 1997, 2011 and 2014 valuations have returned in history, making it attractive. From the perspective of layout direction, we are more optimistic about consumption, finance, science and technology and other fields.

Is in a better time of layout.

China Fund News reporter: there has been a shock in the Hong Kong stock market recently. do you think Hong Kong stocks are in a better layout at the moment?

Li Xiangjie:We believe that the Hong Kong stock market is in a better layout. From historical experience, there is an obvious periodicity in the Hong Kong stock market. Valuations, investor positions and capital inflows in the Hong Kong market were all historically low in the third quarter of 2019, all signs that the Hong Kong stock market has reached a phased bottom, and the upward probability is much higher than the downside probability in the next 1-2 years. It is expected that after social events subside, the Hong Kong stock market will usher in an improvement in fundamentals and a rebound in valuations.

Yu Hao:The strong and weak performance of Hong Kong stocks and A-shares conforms to a law in terms of historical performance: if corporate earnings begin to improve and market liquidity tightens, Hong Kong stocks usually outperform A-shares, for example, from 2016 to 2018. On the other hand, if corporate profits decline and the market liquidity is relatively loose, A shares usually outperform Hong Kong stocks, for example, from 2010 to 2011, 2014 to 2015, 2019 and so on.

The strength pattern of Hong Kong stocks and A shares usually does not exceed three years. In 2010 and 2011, Hong Kong stocks were weaker than A shares; in 2012 and 2013, Hong Kong stocks won in a row. In 2014 and 2015, Hong Kong stocks significantly outperformed A shares, while from 2016 to 2018, Hong Kong stocks outperformed for three consecutive years. Since the beginning of this year, Hong Kong stocks have lost more than 30 points to A-shares. Is it a better time for layout? We can analyze it from the perspective of valuation level and corporate profit.

Valuation level is an important factor to measure the margin of investment safety. Hang Seng is now 10 times PE, and only valuations in 1997, 11 and 2014 have returned to that level. Historically, as long as the valuation of the Hang Seng Index has fallen to 10 times each time, there will be at least two consecutive years of winning, but the main risk is not how long it will win, but how long it will take before it starts to win.

From the perspective of corporate earnings, the reporting data of listed companies reflect the resilience of corporate profits, especially large enterprises. Cheap is the last word. The current valuation of Hong Kong stocks is already cheap enough, especially when there is no significant risk to corporate profits, the rate of return on dividends can provide the most reliable margin of safety. Therefore, from a two-year time perspective, I think Hong Kong stocks are now a better time for layout.

Qu Yang:Recently, due to the influence of external factors, Hong Kong stocks have adjusted to a certain extent. However, from the current point of view, the negative factors affecting Hong Kong stocks are changing. under the pressure on the US economy, it is expected that the possibility of relaxation of Sino-US relations will be further improved, and the external negative impact will gradually weaken.

Han Cheuk-lam:On the whole, under the background of "steady rise" in the fundamentals of Hong Kong stocks, the value of medium-and long-term investment is highlighted in the extreme fluctuations in valuation. At present, Hong Kong stocks are at a relatively good time for reverse investment:

First of all, after a period of "domestic and foreign difficulties" decline, Hong Kong stock valuations have returned to historically very low levels, and the advantages of high dividends and low PE highlight the attraction of medium-and long-term capital allocation.

Secondly, from the perspective of earnings growth, Chinese capital stocks in Hong Kong stocks reported better than expected, and fundamentals may show upward flexibility in the future as economic expectations stabilize, tax cuts and dividends are released, and financing costs go down.

Third, shocks such as the Sino-US trade war and social events tend to be watered down, and the relaxation of the external "headwind" will promote valuation repair.

Tao Yifei:There is no doubt that Hong Kong stocks are now a very good time to lay out. Because although the US economy is likely to decline in the future, the US government, including the Federal Reserve, is more flexible and proactive in adjusting economic policy than before, so there should be little chance of a large-scale economic crisis like in the past. At the same time, if we look at China's domestic economy, it will change from high-speed development to quality development in the future, so the excellent leading companies with technology will benefit for a long time and get better development. Moreover, although the friction between China and the United States will have some impact on us in the short term, it will at the same time make us realize that our shortcomings in various fields will promote our development, including our policies.

Therefore, although Hong Kong stocks are currently troubled by some of the above factors in the short term, in the medium to long term, these will promote the sustained and healthy development of Hong Kong stocks.

Zheng Dong:Since May this year, the Hong Kong stock market has adjusted significantly under the influence of the Sino-US trade war and other factors. We think that from a medium-to long-term point of view, Hong Kong stocks already have obvious investment value. The main reasons are as follows:

1) at present, the margin of valuation safety is high, and the risk of further decline is limited. The current valuation of the Hang Seng Index is below the historical average. Under the current environment of loose global liquidity and declining interest rate centers, the valuation is more attractive.

2) the leading companies of Hong Kong stocks, especially large multinational institutions or Chinese companies, have a higher ability to resist risks in the economic downturn. The reports of many enterprises show that under the extremely severe macroeconomic environment, the leading enterprises of Hong Kong stocks have still achieved growth beyond that of their peers through excellent management capabilities.

3) with the resumption of the interest rate reduction cycle by the Federal Reserve and the resumption of quantitative easing in Europe, global liquidity has gradually improved, which is conducive to the repair of Hong Kong stock valuations.

Have medium-and long-term investment value

China Fund News reporter: what do you think of the medium-and long-term investment opportunities for Hong Kong stocks? Where are the opportunities and risks?

Li Xiangjie:The Hong Kong stock market is mainly composed of Hong Kong local stocks, Chinese capital stocks and other overseas stocks. In the next 1-2 years, both Chinese stocks and overseas stocks listed in Hong Kong will have better investment opportunities. Most H shares have a significant Hmax A discount, and low valuations of H shares can bring higher dividend yields and room for valuation repair for investors. With the increase of the number of Chinese enterprises listed in Hong Kong, the types of enterprises in the Hong Kong market are becoming more and more abundant, and the number of investable targets is increasing. For Hong Kong local stocks, social events may lead to poor performance in the coming months, and we believe that we should avoid the relevant sectors and guard against risks in the short term.

The Hong Kong market is a highly efficient market with relatively self-disciplined investors. If we extend the investment period to 3-5 years, we believe that companies with strong profit growth will have significant relative gains. Investors can seize the investment opportunities of high-quality enterprises by selecting stocks, evade macro, policy and market risks and create returns beyond the market.

Yu Hao:I am optimistic about the medium-and long-term opportunities for Hong Kong stocks, and there are two main positive factors: first, the valuation of Hong Kong stocks is already very cheap. At any time, as long as the asset price is cheap enough and the future profit risk is small, it is very worthwhile to invest from the perspective of absolute return. From the perspective of asset allocation, the absolute return of Hong Kong stocks is strong, and the risk is lower than that of A-shares. Buying assets at a cheap price will at least not lose a lot of money, and the long-term high probability will bring more stable returns.

Second, from the perspective of corporate earnings, the current level of corporate earnings is good, cash flow and balance sheet are healthy, there is no risk of continuous downward adjustment of corporate profits, and profits are expected to be stable in the first half of next year or the fourth quarter of this year. We draw this judgment on the basis of two points: first, in this round of economic cycle adjustment, the real estate industry as a whole is in a relatively prosperous state, and the fluctuation of corporate profits is much smaller than before; second, from the perspective of capital expenditure, since the government implemented the supply-side reform policy in 2016, cyclical industries have not leveraged the economic cycle upward. Therefore, although the prosperity of the industry is downward this year, from the perspective of cash flow and balance sheet, there is no significant downside risk to corporate profits, especially the leading enterprises.

From the perspective of business operation, capital expenditure plays a decisive role in the future profitability of enterprises. In the past economic cycle, when the economy was in an upward cycle, weekly stocks such as coal, steel and non-ferrous metals would rise in volume and price, and companies would tend to expand capital expenditure and capacity. But in the upward cycle since 2016, companies have not expanded their production capacity during periods of good market liquidity and better profits, so they do not have to bear the investment risk of the economic downturn. According to EV/EBITDA indicators, Hong Kong stocks are currently valued at a lower level than PE. PE often encounters 10 times in history and then rebounds, but now EV/EBITDA is near an all-time low, reaching this level only once in 2011. In other words, the micro-management level of corporate profits is better, which is why I say that there is no significant risk in the profits of leading enterprises.

Combined with the China News and research, at present, there is no significant risk in corporate profits, and the reporting performance of the cycle leading enterprises is good. At present, the absolute valuation of Hong Kong stocks is relatively low, the absolute income attribute is strong, and the risk is lower than that of A-shares. The current time layout is expected to harvest a double rise in earnings valuation after corporate earnings expectations are stable in the next two years.

Looking ahead, the risk of investing in Hong Kong stocks is when corporate profits will pick up again and the risk of Sino-US trade relations. According to past rules, the Hang Seng Index of Hong Kong stocks is now 10 times PE, and its valuation has fallen to 10 times every time in history, and there will be a better performance in the next two years. The main risk is how long to wait, that is, the cost of time. If there is no significant risk in corporate earnings, it is expected that the valuation of Hong Kong stocks will return soon; if there is a new episode in Sino-US trade friction, there will be significant risks in corporate earnings, and the return of valuation will have to wait for the end of the downward adjustment of earnings expectations.

Qu Yang:The main factors determining the trend of Hong Kong stocks are China's economic fundamentals and the Fed's monetary policy. With the Fed ending the contraction ahead of schedule, the improvement in the liquidity environment of Hong Kong stocks is more certain. At present, the domestic economy is in a low and stable stage, with the Fed cutting interest rates, the room for domestic policy operation is also expanding in the future, and it is expected that the allocation of resources will be further optimized. We believe that the economy will show a dual pattern in the future, and there will be structural investment opportunities in the stock market. After a deep adjustment in the previous period, the valuation of Hong Kong stocks has returned to the bottom of history, and the investment value is significant in the long run.

Han Cheuk-lam:In the medium to long term, the Hong Kong stock market remains a fertile ground for medium-and long-term value investors around the world.

For domestic investors, Hong Kong stocks are the main destination for overseas allocation of huge domestic stock wealth. Under the background of high dividend, low PE and high AH premium, southward funds will continue to allocate more Hong Kong stocks.

For foreign investors, the sound fundamentals and low valuations of Hong Kong stocks meet the return requirements of long-term funds such as pensions and sovereign funds. with the easing of global liquidity and the improvement of risk appetite, overseas allocation funds tend to be arranged on the left.

The main risks of Hong Kong stocks include exchange rate fluctuations and changes in the social situation.

First, changes in the Sino-US trade situation affect the trend of the exchange rate, while exchange rate fluctuations often suppress the earnings expectations and valuations of Chinese stocks in Hong Kong, increasing the uncertainty of earnings.

Second, if social events worsen and capital risk aversion tends to rise, Hong Kong's economic growth will be dragged down.

Tao Yifei:As for risk, due to the particularity of Hong Kong stocks, he will be affected by the various international and domestic factors just introduced.

However, it is precisely because of this that the valuation of Hong Kong stocks is relatively low, and at the same time, Hong Kong stocks can benefit from the long-term sustained economic development of our country, as well as the strengthening of reform and opening up, so Hong Kong stocks are a very good choice for investors.

Zheng Dong:In the medium to long term, there are two main sources of investment opportunities for Hong Kong stocks:

1) the sustainable growth of corporate profits of listed companies brings long-term investment value.

2) the reconstruction of valuation system brought about by the change of investor structure.

Hong Kong stock market as an offshore market, on the one hand, the main body of listed companies are Chinese mainland Chinese enterprises, on the other hand, the main source of capital is Europe and the United States. This characteristic leads to a certain degree of information communication barrier between investors and the object of investment, so there must be a certain discount in valuation. With the deepening of the interconnection between the HKEx and the mainland capital markets in recent years, the proportion of mainland funds in Hong Kong stock investment has been increasing. If domestic investors have a say in Hong Kong stocks on a par with foreign investors, the discount on the offshore market valuation of the Hong Kong stock market is expected to narrow, leading to investment opportunities for revaluation. The main risks of Hong Kong stocks mainly come from external uncertainty.

Consumption, science and technology, medicine and so on are valued.

China Fund News reporter: if the current layout of Hong Kong stocks, which areas or industries have more layout value?

Li Xiangjie: we are optimistic about investment opportunities in consumption, science and technology, medicine and other sectors for a long time.

1) Consumer sector: we are optimistic about the investment opportunities brought about by consumption upgrading for a long time. Typical sub-sections include sportswear, food and beverage, property services, and so on. There are a large number of high-quality enterprises in these sub-sections. Will be affected by social consumption trends continue to create steady performance returns.

2) Technology sector: 5G commercialization, smartphone upgrading and the popularity of AR/VR will jointly bring investment opportunities to the hardware technology sector. we are optimistic about communications, consumer electronics and other races, and think that H-share related targets are attractive in terms of market pattern, technology accumulation and valuation.

3) Pharmaceutical sector: the landing of China's health insurance policy leads to the repair of plate valuation. we are optimistic about the investment opportunities brought by innovative drugs and domestic substitutions, and believe that pharmaceutical leaders will be strong in the future.

Yu Hao:This year, the world is in a downward economic cycle, the global monetary policy is loose, Japan and Europe have entered the era of negative interest rates, the financial environment assets are imminent, and the target with high dividend yield will attract the attention of global funds. At present, the dividend yield of Hong Kong stocks is more than 3.8%. For global asset allocation, the characteristics of high dividends and stable profits of Hong Kong stocks are similar to an option. Some of the targets of high dividends of Hong Kong stocks are scarce investment targets, and the current time is the best choice for absolute returns and long-term value investment.

In addition to the high dividend targets, I am optimistic about the allocation opportunities in the three major industries, namely, finance, technology and consumption. Among them, the valuation of the financial industry is very low, suitable for long-term investment, technology and consumption are more aggressive. From the perspective of stock selection, we should focus on selecting high-quality companies.

This is because the stock price is determined by both earnings and valuation. Short-term stock price fluctuations usually go up and down with valuation changes, while in the long run, the stock price trend follows the earnings trend. High-quality companies have a good long-term earnings trend, and the stock price is on an upward channel for a long time. When the valuation falls more than the earnings growth in a given year, the stock price will fall, but as long as the quality of the company is good and the profit is good, the fall in the stock price is a good opportunity to buy. As short-term factors fade, we will be able to earn both valuation return and earnings growth in the future.

Qu Yang:In the future, the economy will show structural differentiation, the traditional economy will be stable and the emerging industries will be active. Future economic development, on the one hand, is to expand domestic demand and stimulate consumption, on the other hand, to encourage scientific and technological innovation and the development of emerging industries. We believe that the top-down system design and policy direction will guide the optimal allocation of market resources and tilt towards domestic consumption and emerging science and technology industries. Therefore, we are mainly optimistic about two major directions, one is domestic demand-driven industries, and the other is technology-driven industries. Specifically, there are structural changes in domestic demand-driven industries, that is, from material consumption to spiritual consumption, that is, the so-called consumption upgrading; technology-driven industries mainly include TMT and some high-end manufacturing industries, which can be divided into hardware and software, hardware is mainly consumer electronics, software is the Internet.

Han Cheuk-lam:At present, the layout of Hong Kong stocks should take into account both growth and low valuation, and it is recommended that the sector should be "both offensive and defensive":

First of all, select the "long-distance running champions" in the fields of consumption, medicine, science and technology, Internet, etc., with a wide moat, stable profit growth, reasonable valuation, high ROE and good corporate governance, and actively seek bargains when stock prices fall.

Secondly, under the downward trend of the interest rate center, sectors and individual stocks with high dividends and high AH premiums such as Hong Kong stock finance are more likely to obtain excess returns, especially for medium-and long-term allocation funds.

Third, the left layout fundamentals are about to usher in the inflection point of the low valuation, early cycle plate, such as the leader of the automobile and other plates.

Finally, we should pay attention to the leading sectors such as insurance and public utilities that have been mistakenly killed in Hong Kong's local stocks.

Tao Yifei:Therefore, we believe that the medium-and long-term investment opportunities for Hong Kong stocks still lie in the outstanding leading companies that can benefit from the long-term economic development. Such as TMT, education, oil clothing, textile clothing and so on.

Zheng Dong:The industries we are more concerned about include:

1) domestic banks: at present, the average valuation of domestic banks in Hong Kong stocks is between 0.5% and 0.6 times, and the dividend yield is between 5% and 6%, which already reflects macroeconomic expectations and has obvious medium-and long-term investment value.

2) TMT: the transformation of China's economic structure depends on technological progress. The development of TMT industry not only meets the actual demand, but also is strongly supported by domestic policies, and conforms to the objective law of China's development. It can be expected that with the deepening of China's technological progress, more bull stocks will continue to emerge in the TMT industry.

3) Big consumption: the consumer industry has always been favored by Hong Kong stock investors because of its high predictable performance. Looking to the future, we believe that there will be more room for growth in the subdivided areas of consumption, which are in line with the upgrading trend of Chinese consumption. at present, we are more optimistic about medicine, sportswear, culture and education and other fields.

Select fund managers with strong investment ability

China Fund News reporter: if ordinary investors use funds to distribute Hong Kong stocks, how do you think they should be screened and from what angles?

Li Xiangjie:For ordinary investors, they should choose the fund products issued by fund companies with strong investment and research team, clear investment strategy and strict risk control and compliance mechanism.

Yu Hao:There is an old saying in the investment circle: "living for a long time is king." When we choose an enterprise, we will not only examine the operating income and profits of the enterprise, but also pay more attention to the quality of cash flow. Because only with a steady stream of cash flow can we ensure that the enterprise can survive and have more opportunities to make money in the future. When it comes to fund investment, investors need to ensure that they are in the car all the time and can not get off midway. It is suggested that investors choose from the two dimensions of fund managers and investment time points.

From the point of view of fund managers, it is recommended to select fund managers who have served for a long time and have experienced a bull-bear cycle in the market. Previous studies have shown that fund managers who have experienced economic cycle rotation and market bull-bear cycle baptism know better how to control risk during a market downturn and capture beta and alpha returns as much as possible when the market has an opportunity.

From the point of view of the investment time, investors are advised to lay out the low valuation as far as possible and wait patiently for the valuation to return to the median value. In investing, people have a subconscious instinct that what happened in the past will be repeated later. For example, when the stock market rises, it feels that it will continue to rise, so it chases high; when the stock market falls, it feels that it will continue to fall, so it cuts its positions. And most of the successful investment is in the bear market layout, bull market harvest. Because the stock price is the superimposed valuation of earnings, the overall earnings are steadily upward with little fluctuation, but the valuation is a short-term upside-down and a long-term return to the median. If investors can copy the bottom at the low valuation, when the valuation returns to the median, they can not only earn the growth of corporate profits, but also earn the return of valuation.

Hong Kong stocks are currently at historically low valuations and investors are advised to choose fund managers who have a long track record and preferably have experienced significant fluctuations in the Hong Kong stock market in 2011 and 2015.

Qu Yang:If investors are relatively more optimistic about Hong Kong stocks, they can make a layout through Shanghai, Hong Kong and Shenzhen themed funds, but they should pay attention to whether their positions are more biased towards the Hong Kong stock market in the past. at the same time, they can also choose to layout QDII products in the Hong Kong stock market.

Tao Yifei:If investors want to receive funds to distribute Hong Kong stocks, from the perspective of asset allocation, I think investors should make reference to the past performance of the fund and choose some long-term stable investment mainly in Hong Kong stocks with a relatively low turnover rate. a fund dominated by long-term investment.

Zheng Dong:Due to the impact of international capital flows, the Hong Kong market has a high volatility. In addition, Hong Kong stocks are dominated by institutional investors, and their investment logic is different from that of A-shares. As an ordinary investor, it is best to borrow the layout of professional funds.