As of yesterday's close, Hong Kong's Hang Seng Index closed up 3.05%, while the Hang Seng Technology Index rose 4.64%. Of the 79 cross-border ETFs that cover investment targets in Hong Kong stocks, 78 are flourishing today, and 8 are up more than 5% today. Among them, over 80% of Hong Kong-themed ETFs have broken out of the “Three Lianyang” market.

In response, a number of public funds have interpreted the recent rebound in Hong Kong stocks. According to them, various factors such as recent domestic economic data exceeding expectations, falling interest rates on US bonds, correction in other Asian markets, and continued southbound capital inflows have supported the recent strengthening of the Hong Kong stock market. Some fund companies mentioned overallocation of Hong Kong stocks in March. However, looking ahead to the later stages, the sustainability of the Hong Kong stock market is still supported by the implementation of more favorable policies and measures, as well as improvements in economic data.

Hong Kong stock ETFs rose across the board, with a maximum increase of more than 5.7%

Internet-themed ETFs have not been in the lead for a long time. The Hong Kong Stock Connect Internet ETF, which is owned by four fund companies, including Huabao Fund, Wells Fargo Fund, E-Fangda Fund, and Bosch Fund, had the highest increase today. The Wells Fargo Stock Connect Internet ETF, which had the biggest increase, rose 5.72% today.

The Hong Kong Stock Connect Technology ETF under ICBC Credit Suisse Fund and Penghua Fund, along with Huatai Berry Hong Kong Stock Connect Technology 50 ETF and China Merchants Hong Kong Technology 50 ETF, also rose more than 5% today.

In addition, 25 Hong Kong-themed ETFs rose more than 4% today. The linked indices cover topics such as Hang Seng Technology, Hong Kong Stock Connect Technology, Hong Kong Stock Connect Consumption, and Hong Kong Stock Connect Pharmaceuticals.

Looking at it over a long period of time, Wind data shows that 67 Hong Kong-themed ETFs have already emerged from the “Three Lianyang” market, with even more significant gains on themes such as the Internet and pharmaceuticals.

Why are Hong Kong stocks rebounding strongly?

Why are Hong Kong-themed ETFs showing strong performance recently? Feng Chencheng, fund manager of Huabao China Securities Hong Kong Stock Connect Internet ETF, analyzed that in terms of economic data, China's CPI rose 0.7% year on year in February and 1.0% month on month. Despite holiday factors, market feedback was positive. UBS economists' research report predicts that domestic CPI and PPI will recover moderately this year. Meanwhile, China's exports from January to February increased 7.1% year over year, which was better than expected, showing signs of improvement in the Chinese economy.

Furthermore, he also mentioned that today's market rumors about Vanke Real Estate bonds have boosted Hong Kong stock investors' confidence in the real estate industry policy. In terms of liquidity, the correction in other Asian markets in the past two days, including Japanese stocks, has also reduced the liquidity pressure on Greater China assets.

Specifically, when it comes to the Hong Kong Stock Internet ETF, he mentioned that among the major components of the index being tracked, Bilibili-W and others, due to recent positive financial performance guidelines, Xiaomi Auto officially announced that it will soon release the SU7 car, which continues to lead the intraday market.

According to Xing Cheng, manager of Hang Seng Qianhaigang Stock Connect Select Fund, Hong Kong stocks have rebounded sharply today. Apart from factors where domestic economic data exceeded expectations, there is also an improvement in market sentiment due to the recent fall in US bond interest rates. The market may have already set prices for the Federal Reserve to begin the interest rate cut cycle in June.

Furthermore, according to Xing Cheng's analysis, southbound capital has shown a net inflow for 18 consecutive trading days since February 7, amounting to HK$56.3 billion. The continuous inflow of southbound capital supports the bullish sentiment of Hong Kong stocks. “Due to the relatively sluggish market sentiment in the early period, short sales of Hong Kong stocks remained high as a share of market turnover. Therefore, with the recent restoration of risk appetite, potential bearish recovery actions or a phased boost to the current round of Hong Kong stock rebound.”

Many core assets of Hong Kong stocks are favored

Looking ahead to the future market, Feng Chencheng believes that in the short term, if Hong Kong stocks continue to maintain an upward trend in the future, the core driver is tracking real estate policy expectations. If there is a possibility of further optimization of the real estate policy, then from a tactical point of view, the logic of today's sharp rise in Hong Kong stocks may continue for some time in the future. Furthermore, if some macroeconomic and financial data for January-February exceed expectations, it may also benefit Hong Kong stocks in the short term.

However, he also mentioned that in terms of Sino-US relations, although the market has begun to reflect a more cautious attitude towards geopolitics since the introduction of the Biosafety Act, if harsher measures are implemented, geopolitical panic may cause market valuations to face certain downside risks.

“The Hong Kong stock market is likely to remain volatile and dominated by structural opportunities until more and symptomatic policies and measures are implemented and supported by improved economic data.” Xing Cheng believes that more policy support, especially on the fiscal side with sufficient strength to achieve a certain total effect, may be the key to breaking the current domestic economic growth impasse and negative market cycle. Although mitigation of external disruptors can lead to a phased rebound, sustainability also requires endogenous dynamic support, such as the implementation of more macroeconomic support policies, to further restore medium- to long-term confidence among residents and enterprises.

He suggested focusing on balanced allocation strategies. On the one hand, focus on leading companies with high performance visibility and large size on the growth track; on the other hand, focus on high-quality targets with undervalued and high dividends. Specifically, the opportunities in the three main lines of investment are worth paying attention to.

The first is high-dividend assets with deterministic shareholder returns, including industries such as telecommunications, energy, utilities, and finance. 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. The third is an opportunity for industrial upgrading under the trend of scientific and technological innovation, including sectors such as TMT and biomedicine.

He said that 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 a high relative investment value in an environment where assets are scarce. Furthermore, going overseas can not only provide a new growth curve for enterprise development, but also effectively make up for the slowdown in growth caused by weak domestic demand.

Huaxia Fund, on the other hand, mentioned overallocating Hong Kong stocks in terms of asset allocation in March. They expect that Hong Kong stock profits will all stabilize at the bottom this year, and the downward pressure on molecular earnings will ease. In terms of allocation, focus on two types of assets. The first category is high-quality core assets that are suppressed by macroeconomic expectations, such as lithium batteries and the Internet. The second category is assets with relatively independent industrial logic, such as innovative cutting-edge TMT, intelligent driving, and innovative drugs.

Judging from the fund's redemption situation, Wind data shows that 79 Hong Kong-themed ETFs were net redeemed over 6 billion shares in total during the year. The Fuguo Hong Kong Stock Connect Internet ETF, the Invesco Great Wall Hong Kong Stock Technology 50 ETF, and the Huaxia Hang Seng Technology Index ETF had many net redemptions. Fund shares decreased by 4.469 billion shares, 3.267 billion shares, and 2,807 billion shares respectively during the year.

Meanwhile, the Huatai Berry Hang Seng Technology ETF received the most net purchases, reaching 2,993 million shares. E-Fangda China Internet ETF and Huaxia Hang Seng Internet ETF received net subscriptions of 846 million and 680 million shares respectively.

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