Source: Wall Street News
Recently, Chinese assets have exploded, and Hong Kong stocks have surged.$Hang Seng China Enterprises Index (800100.HK)$Entering a technical bull market, global capital is returning to the Chinese market, and the “do long China” trade is back?
On April 10, Hong Kong stocks surged, and the Hang Seng State-owned Enterprises Index rose more than 2% to 6016.83 points, up 20% from the stage low set in January, and entered a technical bull market.
US stocks and Chinese assets exploded overnight.$NASDAQ Golden Dragon China (.HXC.US)$rose 1.68%. Currently, the price-earnings ratio of the NASDAQ China Golden Dragon Index is only 20 times, while the price-earnings ratio of the US NASDAQ Index has reached 30 times. From a valuation perspective, China Securities are still very attractive.
China's Internet ETFs have continued to rise. Today, all four China Internet ETFs have increased by about 2.5%. According to data, according to the 2023 profit forecast, the valuation of China Internet stocks was 15.7 times PE in September 2023, 14.2 times PE in December 23, and dropped to around 13 times in March 2024, which is low.
The appeal of US stocks is gradually disappearing
Hiroze Research pointed out in a recently released report that US economic data is strong, expectations of interest rate cuts continue to be thwarted, the attractiveness of US risk assets, especially US stocks, is gradually disappearing, and the risk-return ratio of investing in US stocks is declining.
At a time when inflation expectations are making a comeback, the market's expectations of the Fed's interest rate cut are facing a “collapse” situation. Currently, the Federal Reserve Fund Futures contract shows that this year's interest rate cut is expected to be about 60 basis points, while the rate cut in early 2024 is expected to be about 150 basis points.
At a time when expectations of interest rate cuts were reversed, the US stock market clearly showed a “no increase” trend: the Dow Jones Industrial Average fell 2.3% last week, the worst weekly performance since March 2023.$S&P 500 Index (.SPX.US)$It fell nearly 1% last week, the biggest weekly decline since early January.
According to Goldman Sachs data, hedge funds sold global stocks for the second consecutive week last week. This was almost entirely driven by short selling, making it the biggest sell-off for hedge funds since mid-January.
Wall Street News's previous analysis indicated that the rise in US stocks this week will also face key tests: first, whether overheated inflation data will once again stifle hopes of interest rate cuts; second, the first quarter earnings season for US stocks has begun, and whether the profitability and prospects of companies can support the current high valuations.
The price-performance ratio of Chinese assets is beginning to gain prominence
Morgan Stanley said in a recently released report that global capital is returning to the Chinese stock market. As the bearish sentiment of some funds on the Chinese market has eased, the withdrawal of long-term global investors from the Chinese stock market (A shares and Hong Kong stocks) has already pressed the pause button.
Hiroze's research pointed out in the report that compared with US stocks, the current investment in the Chinese stock market is more cost-effective, and the Chinese stock market is more attractive, and he is particularly optimistic about Hong Kong stocks.
Zhang Yidong, chief strategy analyst at Societe Generale Securities, said that Hong Kong stocks have experienced the “coldest winter” where confidence has declined, and assets with a high win rate may lead the “spring return to Hong Kong stocks.”
As of March 20, 2024,$Hang Seng Index (800000.HK)$Compared to$China 10-Year Treasury Notes Yield (CN10Y.BD)$The calculated risk premium is 9.48%, near its high since 2008. The Hang Seng Index is compared to$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$The calculated risk premium is 7.50%. Compared to other major global stock markets, as of March 20, 2024, the risk premium for US stocks was even negative. The risk premium for Japanese stocks was only 2.76%, and the risk premium for European stocks was only 4.34%.
In addition to the risk premium for Hong Kong stocks, Zhang Yidong pointed out that compared with the valuation of representative stocks in Hong Kong stocks and individual stocks similar to US stocks, Hong Kong stocks have a clear discount.
Take the technology industry as an example, Hong Kong stocks$TENCENT (00700.HK)$,$BABA-SW (09988.HK)$,$JD-SW (09618.HK)$,$NTES-S (09999.HK)$,$BIDU-SW (09888.HK)$The PE valuation is in the range of about 8-16 times, PEG is in the range of 0.7-2 times, while US stocks$Alphabet-A (GOOGL.US)$,$Microsoft (MSFT.US)$,$Meta Platforms (META.US)$,$Amazon (AMZN.US)$The PE valuation is between 20-40 times, and PEG is in the range of 1-2 times.
A number of foreign-funded institutions have recently released reports, invariably pointing out that as China's economy recovers and the tightening of overseas liquidity tends to ease, the degree of facilitation of cross-border investment and financing continues to increase, and corporate governance conditions gradually improve, Chinese assets will attract more and more foreign investment.
Recent Chinese macroeconomic data shows that the Chinese economy is forming a potential bottom. China's manufacturing PMI index returned to the expansion range in March. The service sector PMI also hit the highest since June, and one of the S&P global PMI factory indices also reached a new high in 13 months.
According to the latest data from HSBC, more than 90% of emerging market funds are increasing their holdings in the Chinese stock market. In February and March of this year, global investors bought mainland Chinese stocks net through Hong Kong Stock Connect for two consecutive months. The last time this happened was in June and July of last year.
Editor/jayden