Tianfeng Securities released a research report saying that in the Hong Kong stock market, in a context where economic data continues to be verified and the pressure to depreciate the Hong Kong dollar has not been relieved, the recommendations are still mainly high dividend strategies. Sectors such as utilities, energy, finance, and telecommunications, which have high dividend rates in the short term, can provide considerable relative returns in this environment even if market volatility increases in the future; in the medium to long term, the technology industry represented by semiconductors and the Internet will still be the main gripper for industrial transformation and is expected to benefit from government support and domestic substitution.

Hong Kong Stock Market: Waiting for More Positive Signals

1) The Hang Seng Index fluctuated and weakened, and major broad-based indices generally pulled back. The January-February economic data was remarkable. Consumption and investment segments achieved marginal year-on-year improvements, and Hong Kong stocks responded positively. Afterwards, under the turmoil of increased RMB fluctuations, most industries spewed up earlier gains. From March 18 to 22, at the style level, Hang Seng Technology fell by 2.65%, and only the high-dividend style recorded an increase of 0.13%; at the industry level, the technology sector bucked the trend. Telecom and IT rose 1.53% and 0.06% respectively, while the real estate and construction (-4.18%) and healthcare (-6.15%) industries led the market decline;

2) The real estate sector is still facing significant downward pressure. If the subsequent policy side can iron out risks in terms of investment and financing, etc., the market risk appetite may increase. Investment in real estate development fell 9% year on year in January-February. The decline in commercial housing sales and sales area both increased to more than 20%, and industry prosperity was still low. Considering that the real estate industry still accounts for a large share of the economy, the importance of ensuring its smooth operation is self-evident. Looking back, Tianfeng Securities believes that if local risks in related fields are effectively curbed, the financing and production enthusiasm of relevant economic players may be boosted and the weak state of corporate credit pulse can be reversed. At that time, Hong Kong stocks are expected to forge more consensus and open up upward space;

3) In terms of allocation, in the context of continuing economic data awaiting verification and the pressure to depreciate the Hong Kong dollar yet to ease, the recommendation is still to focus on high dividend strategies. Sectors such as utilities, energy, finance, and telecommunications, which have high dividend rates in the short term, can provide considerable relative returns in this environment even if market volatility increases in the future; in the medium to long term, the technology industry represented by semiconductors and the Internet will still be the main gripper for industrial transformation and is expected to benefit from government support and domestic substitution.

US Stock Market: Focus on the possibility of declining bond market volatility

1) US stocks digested early adjustments and began a strong rebound, with all three major stock indexes reaching record highs. In the early morning of March 21, the Federal Reserve held a March interest rate meeting. The statement maintained that the current federal funds target interest rate range of 5.25-5.50% remained unchanged, and believed that the inflationary pressure at the beginning of the year was safe, the overall downward trend remained unchanged, and that the economic forecast evolved sharply towards “no landing”, further enhancing market risk appetite. From March 18 to 22, the NASDAQ index rose significantly by 2.85%, and the S&P 500 and Dow Jones Industrial Average rose by about 2%. The three major stock indexes all reached record highs. At the style level, the market and growth style were dominant, with the S&P 500 net growth index rising 3.24%; at the industry level, the technology sector represented by communication services (+4.78%) and information technology (+2.92%) had the highest gains. Some consumer sectors, such as daily consumption (+0.88%) and healthcare (+0.38%), underperformed, and only real estate recorded negative returns (-0.44%);

2) Under the dovish guidance of the Federal Reserve, we still need to be wary of the risk of secondary inflation, and the space for interest rate cuts may be limited. The interest rate meeting in March created a picture where the economy does not land and inflation is manageable. Tianfeng Securities believes that although the Federal Reserve currently reserves room to cut interest rates of 75 bp for the whole year under optimistic economic expectations, if there is a second round of inflationary pressure, there is a possibility that the room for interest rate cuts will be suppressed. The US technological revolution and tight labor market will increase the probability of re-inflation in the US from both supply and demand. Relaxed monetary policies may push inflation away from the Federal Reserve's long-term target level of 2%, so we still need to be cautious about the room for future interest rate cuts;

3) Since the interest rate hike cycle, the bond volatility index has been better matched with US stocks. The MOVE index maintained a good negative correlation with the S&P 500, and also had a certain lead over a period of time. The potential explanation is that the rise in the MOVE index represents unstable expectations at the center of interest rates, implying possible liquidity or other shocks in the market, and indirectly affecting the stock market; the decline in the MOVE index reflects the reality of a strong economy, reducing market uncertainty and driving US stocks higher. Given that the current MOVE index is still quite far from the historical average, Tianfeng Securities believes that if the resilience of the US economy is further proven, market uncertainty may decline further, and US stocks are expected to rise.

4) In terms of investment strategies, there are still signs of overheating in some market technical indicators in the short term. Economic data and industry trends have yet to be more upward catalyzed, so we can be appropriately cautious about US stocks. The allocation level revolves around three main lines. First, under the benchmark assumption of a soft landing in the US economy, inflation is likely to pick up, and procyclical sectors such as energy and raw materials may have some room for profit; second, the market still retains expectations of interest rate cuts during the year and focuses on interest rate sensitive sectors such as healthcare; and third, artificial intelligence industry trends are still in the verification stage, focusing on allocation opportunities in some technology segments.

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