Source: Yaya Hong Kong Stock Exchange
Over the past half month, Hong Kong stocks have experienced a sharp rise after a long absence.$ChinaAMC Hang Seng Tech Index ETF (513180.SH)$und$CAMC HS Sci-Tech ETF QDII (513330.SH)$Both are up nearly 20%. If you consider the shareholding experience during the process, it can be said that it is not at all inferior to most of the weighted stocks in the index.
Specifically, in just two weeks, Hong Kong stocks have erased last year's decline, surpassing the S&P 500 and becoming the second-highest market during the year. Perhaps after 3 years of a bear market in Hong Kong stocks, whether they are large long-term institutions or retail investors, even after the sharp rise, they are watching the market move forward step by step, and the market continues to move forward in hesitation.
In fact, Hong Kong stocks are changing at this stage.
Looking at capital flows, the recent rise in the upward slope of the Hong Kong stock index is mainly due to foreign purchases. Prior to that, the core buyers of the Hong Kong stock market were mainly mainland capital. In the past four months, the net inflow of Hong Kong Stock Connect exceeded 210 billion yuan, the second-highest net inflow data in history. The reason is also very simple: believe in common sense and believe in a return to the mean. For a market that has been declining continuously for 4 years, while profits of core companies and shareholder returns continue to improve in the process, the divergence between the two is bound to continue at some point in the future.
And even after this round of sharp rise in Hong Kong stocks,$Hang Seng Index (800000.HK)$The price-earnings ratio is only 9 times, far less than$Nikkei 225 (.N225.JP)$The price-earnings ratio of 16 times is also less than$S&P 500 Index (.SPX.US)$25 times the price-earnings ratio.
Specifically, there are two reasons driving foreign investors to re-embrace Chinese assets.
On the one hand, this round of trading began after the Bank of Japan raised interest rates, and the yen depreciated from 150 yuan to 160 yuan. Previously, institutions were still assuming that the yen rate hike would strengthen to 120-130 yuan. Japanese companies' profits deteriorated, which may cause Japanese stocks to fall. However, what exceeded market expectations was that the interest rate hike instead caused the yen to rise and depreciate, causing foreign investors to take profits and Japanese stocks.
As can be seen, the recent decline in Nikkei 225 and the depreciation of yen corresponds to the rise in the Hang Seng Index. Previously, the correlation between the depreciation of the yen and the rise in Nikkei changed. After the logic changed, it can be proved from the side that the willingness of foreign capital to flow into Japanese stocks decreased. Meanwhile, market valuation tolerance for US stocks has continued to decline due to continued high inflation data recently.
In other words, the core markets and assets of overseas markets lack sufficient opportunities to attract them. As Buffett said at the shareholders' meeting, Berkshire has 200 billion dollars on its account, but there are no easy investments, and the opportunities to choose from in the market are dwindling. Therefore, in this psychological context, the Hong Kong stock market is undoubtedly a more clear choice, whether from the perspective of a top-down configuration or a fundamental dimension from the bottom up.
On the other hand, according to CICC statistics, corporate profit forecasts have not been revised recently, indicating that this round of the market is more driven by capital.
According to the previous logic, after the yen falls to a new low, foreign investors are indeed likely to continue to do more Japanese stocks. However, like last year's large-scale multi-day stock market and withdrawal from Hong Kong stocks, it probably won't happen in the future. Even if it does, the probability is limited, and it is more likely to be a chance to get on the bus.
The reason is simple and crude. The decline in Hong Kong stocks over the past 4 years has basically fully or even overpriced the negative factors that may occur. Even if the downturn has taken place, judging from several recent stress tests, it is basically just a bit of thunder and rain. Conversely, in this environment, if marginal factors change slightly positively, the room for growth is likely to be enormous and extremely fast.
Currently, the proportion of funds allocated to China in the emerging market is only 5%, and the proportion of funds allocated to China in the global market is about 2.3%, which is still the lowest level in the past 5 years.
By the end of March, the allocation ratio of various types of funds to Chinese stocks had rebounded to varying degrees compared to last year. The largest domestic passive fund rose 13% year over year, while the active size of global funds rebounded 7%. The overall allocation of foreign capital is improving; on the contrary, the allocation of domestic funds is declining.
From a macro perspective, Hang Seng Technology's valuation was suppressed by geopolitics and fundamentals, but now there are marginal improvements, and foreign investors are not so pessimistic about Hong Kong stock expectations. Coupled with Hang Seng Technology's major constituent stocks beginning to expand repurchases to support share prices, the market is gradually revising unreasonable pricing.
As foreign investors often say, huge asset price changes often occur when more and more people correct their previous prejudice, rather than necessarily requiring a change in the actual situation; now is similar to this stage.
In this round of rebound, the Hang Seng Technology Index ETF (513180.SH) rose nearly 20%, and the Hang Seng Internet ETF (513330.SH) rose nearly 25%. In terms of valuation, Hang Seng Technology's price-earnings ratio is 24 times, and there is still plenty of room for the previous average of 35 times PE or more.
Specifically, Internet companies are still leading the market this time.$TENCENT (00700.HK)$Up more than 20%,$MEITUAN-W (03690.HK)$increased 23%,$KUAISHOU-W (01024.HK)$increased by 40%,$JD-SW (09618.HK)$30% increase,$BABA-SW (09988.HK)$Up nearly 20%.
There are two reasons why Hang Seng Technology's Internet companies are receiving the most capital inflows. One is that valuations are cheap, and various business risks have been gradually eliminated. For example, when worried that Meituan will be encroached upon by Douyin before, Ali/JD is affected$PDD Holdings (PDD.US)$The shocks have now all reached an inflection point.
Second, judging from the constituent stocks of the Hang Seng Technology Index ETF (513180.SH), the top 10 constituent stocks account for 72.2% of the index, including Tencent, Kuaishou, Meituan, JD, Ali,$NTES-S (09999.HK)$They all have clear shareholder return plans.
The advantage of Internet companies is that they have strong cash flow, and the money they earn every year is enough to cover the repurchase plan. The stable growth rate ensures that the repurchase amount can be continuously increased in the future, and has the ability to generate medium- to long-term returns for shareholders, in line with the development of US technology stocks. As the macroeconomy recovers, these leading internet companies are the biggest betas.
Taking Tencent as an example, Tencent's daily repurchase amount increased from 300 to 400 million yuan last year to 1 billion yuan. If a daily repurchase of 1 billion yuan is maintained, the annual repurchase amount is about 140 billion yuan, and all repurchased shares are cancelled, which can contribute 8-9% to EPS. Similarly, in the course of the recent rise, Meituan continues to repurchase at a scale of HK$215 million per day.
Internet companies' enthusiasm for repurchases is gradually reflected in stock prices, which has given investors confidence and expanded safety pads. Longer repurchase times can only reflect greater benefits. However, with major changes in the Internet industry in the medium to long term, it is not too late to launch the Hang Seng Technology Index ETF (513180.SH); there must be a surprise when holding it for a long time.
It is worth mentioning that 28% of the constituent stocks in the Hang Seng Technology Index ETF (513180.SH) come from other companies that have not been repurchased, such as those with fierce business competition$LI AUTO-W (02015.HK)$,$XPENG-W (09868.HK)$,$SMIC (00981.HK)$Wait, when the macroeconomic economy improves, Hang Seng Technology ETF will get a wider range of industry betas.
If investors have a low risk appetite and want to share the medium- to long-term shareholder returns of Chinese Internet companies in the future, they can also participate through the Hang Seng Internet ETF (513330). The top ten major stocks in Hang Seng Internet ETF account for 90% of the shares, which is more concentrated than Hang Seng Technology ETF. Among them, Tencent accounts for 15%, Meituan for 14.45%, Kuaishou for 13.34%, and NetEase for 11%.
Overall, the pricing of Hong Kong stocks in the past 2 years has been distorted by various complicated factors, but when the foreign investment logic changes, it is a good time for Hong Kong stocks to seize the right time to resume reasonable pricing.
Editor/jayden