On June 17th, the three major indexes in Hong Kong stock market opened collectively lower, with the Hang Seng Index down 0.52%, the Hang Seng Tech Index down 0.58%, and the Hang Seng China Enterprises Index down 0.51%.

On the market, network technology stocks and new car-making forces performed weakly, with Alibaba down 1.3% and Xpeng and Nio down more than 1%.

Regarding the future of Hong Kong stocks, CICC's research report stated that under the benchmark scenario, policies are still expected to continue to be introduced, but 'strong stimulation' is not realistic, so the market may show more short-term consolidation. How much more room will the market have later? Of the three main drivers of the market:

1) Risk premium has been mostly repaired. Our calculation shows that relying solely on the repair of risk appetite may push the Hang Seng Index to our first target range of 19,000-20,000 points;

2) The short-term space for risk-free interest rates to move is limited. Assuming that the central value of the 10-year US Treasury yield falls to 4% and the 10-year China bond remains unchanged at 2.3%, it may support the market to around 21,000 points;

3) Profitability is the key to opening up more space in the market. If the profit can achieve 10% growth in 2024, the Hang Seng Index is expected to climb to 22,000 points or higher, but this also depends heavily on the opening of the credit cycle.

We calculated from the top-down strategy perspective for 2024 profit growth of 4%, which is lower than the current market consensus. Therefore, we believe that before more catalysts appear, the market may consolidate at the current level (Hang Seng 18,000 points).

However, we believe that Hong Kong stocks still have more advantages than A shares, reflected in: 1) low valuations, whether high dividends or technology growth; 2) Hong Kong stocks are more sensitive to liquidity, and the proportion of overseas capital allocation is also at a low level. As of the end of April, the overall foreign investment in Chinese stocks has dropped from 15% at the beginning of 2021 to 5%, and it is 1ppt lower than the passive ratio; 3) The proportion of industries with good profitability cycles and Internet-related sectors in Hong Kong stocks is higher, and most of the real estate and manufacturing chains with profitability pressure are concentrated in A shares. In addition, if the Federal Reserve cuts interest rates within this year, the Hong Kong stock market under the linked exchange rate system will benefit more than A shares.

Regarding the reason for the recent decline in Hong Kong stocks after a large increase, Fu Beijia, a fund manager of HSBC Jintrust Fund, believes that the previous soaring market was driven by interest rates, fundamentals, and trading aspects. The recent adjustment of Hong Kong stocks is mainly due to the gradual slowdown of passive fund inflows in the context of the postponed expectation of the Fed rate cut, the slightly rising short position ratio, and active funds are still waiting for the verification of economic fundamentals. These factors have prompted Hong Kong stocks to fall back. However, the factors that drove the rise of Hong Kong stocks have not disappeared, and the decline of RMB assets will not be too deep, so the subsequent upward trend is still worth looking forward to.

Looking ahead, Fu Beijia believes that the core of the Hong Kong stock market is profit growth, and liquidity is expected to continue to improve in the second half of the year. Fu Beijia said that in the future, we need to focus on domestic corporate startups and cash flows, the pace of domestic demand recovery, changes in overseas interest rate expectations, and other situations. To obtain investment returns, we will inevitably face risks, and the key is how to control risk exposure and seek the largest risk-return ratio as possible.

Fu Beijia said that the focus in the future will be on three main lines:

The first is profit growth beyond expectations. Benefiting from large operating leverage, cost reduction and efficiency improvement in the previous period, the profits of the Internet and some consumer service industries are expected to continue to exceed expectations. At the same time, some leading companies have made breakthroughs in new technologies or products, and their revenues are expected to increase significantly, opening up the second growth, and specific bullish on the Internet, some consumer services, and the electronics industry.

The second is the opportunities brought by the decline of US Treasury yields. In the second half of the year, the trend of US Treasury yields is expected to trend downward. We focus on industries with market expectations at a low level and a large negative correlation with the US dollar, as well as industries with good supply and demand structure, which may contribute more profits than expected due to price rises, including non-ferrous metals, innovative drugs, etc.

The third is high dividend assets. Focus on high dividend assets investment opportunities with good fundamentals, stable net asset return on investment and increasing willingness to distribute dividends. As interest rates decline, the expansion of high dividend asset valuations is more certain. The dividend yield of some Hong Kong stocks is significantly higher than other markets, and the medium- to long-term bullish on their base position allocation value.

Hot news

According to initial statistics from the central bank, the cumulative increase in social financing scale for the first five months of 2024 was 14.8 trillion yuan, 252 billion yuan less than the same period last year. Among them, RMB loans issued to the real economy increased by 1.026 trillion yuan, a decrease of 210 billion yuan year-on-year; foreign currency loans issued to the real economy converted into RMB increased by 72.7 billion yuan, an increase of 77.8 billion yuan year-on-year; entrusted loans decreased by 91.5 billion yuan, a decrease of 171.4 billion yuan year-on-year; trust loans increased by 235 billion yuan, an increase of 196.8 billion yuan year-on-year; undiscounted bank acceptance bills decreased by 31.8 billion yuan, a decrease of 186.3 billion yuan year-on-year; net financing of corporate bonds was 120 billion yuan, an increase of 251.9 billion yuan year-on-year; net financing of government bonds was 249 billion yuan, a decrease of 349.7 billion yuan year-on-year; and net financing from non-financial domestic equity offerings of enterprises was 106 billion yuan, a decrease of 283.5 billion yuan year-on-year.

Recently, the People's Bank of China announced the cancellation of the lower limit for commercial individual housing loan interest rates for first-time and second-time homebuyers nationwide except for Beijing, Shanghai and Shenzhen. After the cancellation of the lower limit of commercial housing loan interest rates in cities, most commercial banks have adjusted the housing loan interest rates according to policies and changes in market conditions, and the actual lending rates have significantly decreased compared with before.

It is estimated that after the policy is implemented, the interest rate for first-time home buyers in most cities may decrease by about 0.4 percentage points, and the interest rate for the second set of home buyers may decrease by about 0.6 percentage points. Calculated with a loan of 1 million yuan, a term of 30 years, and equal principal and interest repayment, the total interest payment for first-time home buyers may be reduced by about 80,000 yuan, and the interest payment for second-set home buyers may be reduced by about 130,000 yuan.

Last Friday, the website of the central bank announced that in April 2024, the People's Bank of China, together with the Ministry of Science and Technology and other departments, will establish a 500 billion yuan re-lending fund for technological innovation and technological transformation. Among them, 100 billion yuan will be specifically used to support the first loan of technology-oriented small and medium-sized enterprises in the start-up and growth stage, encouraging financial institutions to invest more in early, small, and hard technology. Recently, the People's Bank of China and the Ministry of Science and Technology have selected the first batch of nearly 7,000 companies that meet the conditions based on the evaluation of the "innovation credit scoring system", and promoted them to 21 national banks. The banks responded quickly, and the first technology innovation loan has recently been issued, and other loans will be put into place one after another.

The People's Bank of China and the Ministry of Science and Technology are organizing the evaluation of more than 320,000 innovative enterprises in the second batch of innovation credit scoring, and pushing the list of selected enterprises to banks. Next, the People's Bank of China will continue to strengthen cooperation with the Ministry of Science and Technology and other departments, optimize the evaluation indicators of innovation credit scoring, enhance the connection among government, banks and enterprises, and promote banks to make good use of the re-lending funds for technological innovation and technological transformation and invest more financial resources in the field of technological innovation, providing strong financial support for accelerating the development of new productive forces.

Hong Kong Exchanges and Clearing Limited announced last Friday that the expansion of eligible ETFs under the Stock Connect will be effective on July 22, 2024. Previously, Hong Kong Exchanges and Clearing Limited, Shanghai Stock Exchange, and Shenzhen Stock Exchange announced new inclusion criteria for the Stock Connect ETFs on April 19, 2024.

Hong Kong Exchanges and Clearing Limited and the Shanghai and Shenzhen Stock Exchanges will announce the latest list of eligible Stock Connect ETFs and eligible Hong Kong Stock Connect ETFs separately on July 12,2024 according to the new inclusion criteria. The deadline for data verification to determine whether the ETFs are eligible is June 17, 2024.

Company News:

China Shenhua Energy (01088): The output of commodity coal in May was 27.4 million tons, a year-on-year increase of 1.9%.

Li Auto Inc-W (02015): On June 15, approximately 2.5951 million restricted shares units were granted.

Ping An Insurance (02318): The total original insurance contract premium income in the first five months was about 399.755 billion yuan, a year-on-year increase of 3.38%.

New China Life Insurance (01336): The cumulative original insurance premium income for the first five months was 78.57 billion yuan, a year-on-year decrease of 10.94%.

China Vanke (02202): The company applied for a loan of 4.1 billion yuan to the Shenzhen branch of Postal Savings Bank of China, and its controlling subsidiary provided guarantee for the related loan by mortgaging the project assets it held.

Metallurgical Corporation of China (01618): The total value of newly signed contracts in the first five months was 508.91 billion yuan, a decrease of 5.7% year-on-year. Among them, the total value of newly signed overseas contracts was 25.77 billion yuan, an increase of 121.8% year-on-year.

Sino-Ocean Group (03377): The cumulative contract sales in the first five months was 9.56 billion yuan, and the average sales price was 9500 yuan per square meter.

R&F Properties (02777): The total sales revenue in the first five months was about 4.45 billion yuan, a year-on-year decrease of 57.86%.

FIH Group (02038): Its subsidiary Feng Lu intends to further invest 42.362 million US dollars in Fushan.

Simcere Pharma (02096): The board of directors has resolved to conduct repurchases of shares in the open market, with a total amount not exceeding 500 million yuan.

This article is selected from "Tencent Self-selected Stocks", edited by Liu Jiayin of China Finance Online.