Source: Broker China
Author: Zhou Le

The continuous rise in Hong Kong stocks made the market very excited. Behind the improvement in the market, there are three major favorable supports:

First, the Hong Kong Monetary Authority (hereinafter referred to as the “Hong Kong Monetary Authority”) is investing heavily in liquidity. On April 22 and 23, it invested HK$525 million and HK$500 million in liquidity through discount windows, respectively.

Second, this year marks the 10th anniversary of the launch of the Mainland and Hong Kong stock market connectivity. Li Jiachao, the Chief Executive of the Hong Kong Special Administrative Region of China, revealed during a meeting with the media before attending the Executive Council that flagship summits and various forums will be held in the Mainland, Hong Kong and overseas, focusing on the achievements, experiences and new developments of “connectivity”, as well as the financing and investment opportunities it brings to enterprises and capital to attract more enterprises and capital to invest in the Hong Kong market.

Third, positive signals have come from the Hong Kong economy. The Financial Secretary of Hong Kong, China, Chan Mao-po said at the APEC Commerce and Trade Advisory Council meeting that Hong Kong's economy is expected to grow by 2.5% to 3.5% this year as Hong Kong's commodity exports improve, inbound tourism continues to recover, and strategic enterprises and talent flows in.

The Hong Kong Monetary Authority takes action

The Hong Kong Monetary Authority is investing heavily in liquidity and is taking action for the second day in a row:

On April 22, the Hong Kong Monetary Authority launched a discount window operation to invest HK$500 million in liquidity to banks. The basic interest rate for this operation remained at 5.75%.

On April 23, the Hong Kong Monetary Authority invested HK$525 million in liquidity through the discount window. Currently, the basic interest rate for the discount window is 5.75%.

The discount window is a standing Hong Kong dollar liquidity arrangement of the Hong Kong Monetary Authority to ensure the smooth operation of the interbank payment system. This move shows that the Hong Kong Monetary Authority is playing a positive role in maintaining the stability and liquidity of the financial market.

Since the beginning of 2024, the Hong Kong Monetary Authority has used discount windows several times to inject liquidity into banks, with a cumulative amount of approximately HK$6.897 billion.

Specifically, the Hong Kong Monetary Authority carried out capital injections on January 3, January 9, January 29, March 18, March 21, and March 26, respectively. The capital involved was HK$1.7 billion, HK$1 billion, HK$2,114 billion, HK$138 million, HK$20 million and HK$900 million respectively.

This series of actions reflects the complexity and uncertainty of current financial markets. Banks need more liquidity to deal with possible risks and challenges, while the Hong Kong Monetary Authority needs to pay close attention to market developments and take timely measures to maintain financial stability.

10th anniversary of connectivity

In the past two days, the Hong Kong stock market has been booming collectively. According to Wind data, on April 23, southbound capital traded HK$37.063 billion, with a net inflow of HK$2,340 billion. This is already 17 consecutive trading days with Southbound Capital recording net purchases totaling HK$84.2 billion. The cumulative net purchase amount increased to HK$202.45 billion during the year.

This year marks the 10th anniversary of the launch of the Mainland and Hong Kong Stock Market Interconnection (“Interconnection”). On April 23, Li Jiachao met with the media before attending the Executive Council and revealed that the SAR government and the Hong Kong Stock Exchange are preparing a number of key promotion activities. In order to attract more capital to trade Hong Kong stocks, the HKSAR Government will step up the introduction of the latest expansion measures and new products to mainland institutional investors and the securities industry in a targeted manner to raise the mainland investment community's understanding of “connectivity”.

In terms of attracting enterprises, Li Jiachao said that the introduction of key enterprise offices, the Investment Promotion Department of the Special Administrative Region Government, and Hong Kong's economic and trade offices in the mainland and overseas will actively promote key enterprises and provide them with assistance to attract them to finance in Hong Kong. The Hong Kong Stock Exchange will continue to host and participate in various events to introduce listing methods in the Hong Kong financial market to companies interested in listing in Hong Kong, especially leading companies in the mainland industry, and provide assistance in preparing applications.

According to the 2024 quarterly report of public funds, Hong Kong stocks have become the key direction for increasing positions. The “Shanghai-Hong Kong-Shenzhen Fund” managed by many star fund managers showed a “Hong Kong content” of more than 50% or even 60%. Internet leaders such as Tencent Holdings returned to the heavy holdings of many star managers, highlighting the cost performance ratio and appeal of the Hong Kong stock internet sector.

At the same time, foreign-funded institutions' outlook on Chinese assets is also undergoing a major shift. On April 23, it was announced that UBS Group upgraded the ratings of A-shares and Hong Kong stocks to “additional allocation” and upgraded the ratings of Chinese stocks to “overrated.” Sunil Tirumalai, chief strategist at UBS Global Emerging Markets, said that among the constituent stocks of the MSCI China Index, the consumer and internet industries account for a high share, and performance is expected to improve as consumption shows initial signs of recovery.

Market analysts believe that UBS's rare increase in China's asset rating conveys a positive judgment on the fundamentals of the A-share and Hong Kong stock markets, macroeconomic environment, corporate profit prospects, and policy trends, or highlights initial optimism that the Chinese market is beginning to gradually improve. This time, the ratings of well-known international institutions may effectively boost market sentiment, attract more domestic and foreign investors, and stimulate investment enthusiasm.

Positive signs for Hong Kong's economy

On April 23, according to the Radio Television Hong Kong website, the Financial Secretary of Hong Kong, China, Chan Mao-po, said that Hong Kong's economic growth is predicted to be between 2.5% and 3.5% this year. The performance in the first quarter is in line with expectations in this range. The unemployment rate and inflation are at a low level. Although property prices were lowered in the first two months, the property market has stabilized, trading has rebounded, and prices have stabilized.

He believes that the China Securities Regulatory Commission introduced 5 measures to support Hong Kong's capital market this week. Among them, it is very important to support leading mainland companies to go public in Hong Kong. If the development and profit performance of the relevant enterprises in Hong Kong are good, it will help attract more international institutional investors and bring more liquidity to Hong Kong; the expansion of connectivity will facilitate international investors to invest in the mainland stock market, and he hopes that measures such as cross-border financial management will continue to be optimized in the future.

Chen Maobo pointed out that in addition to the development of the financial industry, the government has high hopes for innovation and technology in Hong Kong. It believes that close cooperation with Shenzhen in the future will make Hong Kong's advantages more obvious if there is a circulation of data, talent and capital.

Chen Maobo pointed out that since December 2022, Hong Kong has approved about 160,000 applications under various talent entry schemes, of which more than 110,000 have arrived in Hong Kong.

Chen Maobo further pointed out that after the pandemic, Hong Kong's tourism industry led Hong Kong's economy to grow by 3.2% last year. The number of visitors to Hong Kong reached 34 million last year, slightly higher than half of what it was before the pandemic. It is expected that this year will further rise to 50 million. Private consumption and overall investment have also improved, but the high interest rate environment and geo-economic fragmentation have curbed commodity exports. The inflation rate is expected to remain low at 1.7%, and the unemployment rate is about 3%.

According to Chan Mao-po, Hong Kong remains attractive for global commerce, investment and talent. According to the survey, the parent company has more than 9,000 overseas companies in Hong Kong, which is similar to before the pandemic. Since the establishment of the Key Enterprise Office in December 2022, Hong Kong has attracted nearly 50 key enterprises to expand their business. Over the next few years, they will invest more than US$5 billion and create more than 13,000 jobs. In addition, the Hong Kong Investment Promotion Agency has also attracted more than 380 other companies, which will invest a total of 7 billion to 8 billion US dollars.

At the same time, the confidence of Hong Kong companies is also picking up. According to the 2023-2024 Asia Pacific Small Business Survey by the Australian Institute of Certified Public Accountants, 69% of Hong Kong's small businesses expect to achieve performance growth in 2024. According to the latest survey, Hong Kong's small businesses have increased confidence in Hong Kong's local economy, and 73% of respondents expect Hong Kong's economy to continue to grow this year.

Editor/jayden