Since the second quarter of this year, as expectations for a positive recovery in China's economic fundamentals have been strengthened and liquidity has improved, more and more global capital has been focusing on Chinese assets.

Today, the Hong Kong stock market will slow down and then rise.$Hang Seng Index (800000.HK)$It rose by another 0.55%, achieving ten consecutive gains, the longest rise in more than six years.

Looking at constituent stocks, nearly ten trading days$AIA (01299.HK)$,$JD-SW (09618.HK)$Up more than 30%,$MEITUAN-W (03690.HK)$,$CHINA RES LAND (01109.HK)$,$PING AN (02318.HK)$,$HKEX (00388.HK)$With an average increase of more than 25%,$CHINA LIFE (02628.HK)$,$TENCENT (00700.HK)$Up more than 20%,$BIDU-SW (09888.HK)$,$BABA-SW (09988.HK)$Up nearly 20%.

In the US stock market,$NASDAQ Golden Dragon China (.HXC.US)$The recent performance was also strong, with a cumulative increase of 14.86% over 10 trading days from April 22 to May 3, the biggest increase for two consecutive weeks since January 2023.

From Futubull$China Concept Stocks (BK2517.US)$Look,$NIO Inc (NIO.US)$surged by over 46%,$KE Holdings (BEKE.US)$Up nearly 40%,$Bilibili (BILI.US)$,$Futu Holdings Ltd (FUTU.US)$,$XPeng (XPEV.US)$Both increased by more than 30%,$JD.com (JD.US)$,$BeiGene (BGNE.US)$,$PDD Holdings (PDD.US)$Up more than 20%,$Baidu (BIDU.US)$,$Tencent Music (TME.US)$Both increased by nearly 20%.

Why did you choose to buy money now?

According to brokerage China, the original reason was that in April, the Securities Regulatory Commission announced 5 cooperative measures with Hong Kong, including easing the scope of ETF products, incorporating REITs, supporting RMB trading counters, optimizing mutual recognition of funds, and unblocking listed financing channels. The new regulations will help unblock connectivity mechanisms, introduce active capital into the Hong Kong capital market, and enhance liquidity. Since then, the Hong Kong market has gradually become active.

Meanwhile, the yen entered a rapid downward channel. After March, although the Bank of Japan released expectations of interest rate hikes, the yen depreciated further. From April 9 to April 29, the dollar depreciated from a high of 151.5 to above 160.2 against the yen. This directly led to the recent return of foreign capital to Hong Kong.

China's economic recovery and policy improvements are also an important point in attracting foreign investment.

Finally, there's appeal. Prior to this rise, the valuation of the Hong Kong stock market had reached the lowest level in the world's major markets. The valuation of the Hang Seng Index was only 8 times higher, while the major indices in the US stock market were more than 25 times higher, and the Japanese market was more than 20 times higher. The Hang Seng Index is also only less than 20% higher than the level at the time of handover in 1997. It can be said that the mood has reached an extreme low.

Some brokerage analysts said that high-quality Hong Kong stock companies, especially Hong Kong stock internet companies, have lower valuations, lighter assets, and faster profit growth. These characteristics complement not only domestic investors, but also a very important source of income for overseas investors.

Of course, the current surge also contains some technical factors: as Hong Kong stocks are undervalued and cheap, this kind of market surge usually triggers “fear of missing out (FOMO).”

In fact, the flow of capital also confirms that Hong Kong stocks are indeed the “best players” to attract money recently. According to the latest report released by the International Finance Association (IIF), the Chinese stock market absorbed 9.6 billion/1.7 billion US dollars in capital in March and April 2024, respectively. The global investment market is changing highs and lows, shifting from US stocks to emerging markets, with a net inflow of foreign capital into emerging markets for the fifth month in a row.

What do you think of the future market?

According to Zhou Hao, an overseas macro research analyst at Guojun,

Against the backdrop of the Federal Reserve's May interest rate meeting failing to provide a clear future policy direction, the focus of the market turned to the Hong Kong stock market. Since April, the Hang Seng Index has performed brilliantly, significantly surpassing US stocks. This not only reflects the market's reassessment of US monetary policy, but also the repricing of China's economic performance.

Goldman Sachs Group said earlier that

As the valuation gap between Japanese stocks and Hong Kong stocks widens, global fund managers may begin to cancel popular trades to do long Japanese stocks. Goldman Sachs stock sales staff wrote that many macro-hedge funds have begun to sell Japanese stocks and make up for their existing short positions in Hong Kong stocks. They said that since Japanese stocks and US stocks are overvalued, some funds that only go long may switch to Hong Kong stocks.

GF Securities said it is optimistic about the long-term prospects of Hong Kong stocks.

The Internet sector, which accounts for the largest share of the Hong Kong stock market capitalization, has been in decline for 3 years. Even judging from the performance at a growth rate of about 10%, this valuation is already seriously discounted. The recovery in China's economic fundamentals expectations and the rising risk of US stagflation are the main drivers of the current round of rebound in Hong Kong stocks, but at present, both may still be in the expected trading stage. The height of the subsequent market will also depend on the actual commencement of construction after the holiday season and the restoration of corporate profits.

Ping An Securities pointed out that since capital inflows into Hong Kong stocks in this round may be mainly transactional capital, the purpose of hedging and trading is stronger, mainly to avoid the risk of a recent pullback in US stocks and Japanese stocks. Whether the inflow continues in the future depends on the easing of external pressure. On the other hand, domestic momentum still needs to be further restored. Overall, the capital of Hong Kong stocks has improved and policies have been actively introduced. Combined, Hong Kong stocks are still at the bottom of the valuation, and the allocation window for Hong Kong stocks has reached.

In addition, Dama analysts recently responded to the reasons for the previous increase in China's stock ratings. The analysts pointed out that there are two reasons:

The first is policy support. In particular, national policies and measures such as the new “National Nine Rules” are expected to significantly increase shareholder returns and stock dividend rates (ROE). By comparing this with similar policies in Japan, the market generally believes that this will bring a long-term bull market to the Chinese stock market.

The second is attractiveness based on valuation. Although the economic situation in the first quarter was not optimistic, judging from the comparison between corporate profits and market expectations, the market believes that the valuation of the Chinese stock market has become relatively cheap and has gradually increased its appeal.

Regarding the room for the Hong Kong stock market to rise in the future, CICC predicts that if the risk premium falls back to the level of the middle of last year and the beginning of the year, it will correspond to about 2%-7% of space, respectively. If subsequent policies continue to be effective, profit growth of 10% under optimistic conditions will correspond to an increase of about 20%.

Editor/Somer