On June 17th, Caixin reported that Hong Kong's three major indices were up today, with the Hang Seng Index still hovering around 18,000 points. China International Capital Corporation pointed out that three key factors would help the market rebound in the future, while emphasizing that the market still has a competitive advantage.

In fact, since the high point in mid-May, the Hong Kong stock market has experienced a nearly 10% pullback. China International Capital Corporation stated that in a stable fundamental situation, the fund-driven rebound could lead to short-term market overboughtness, followed by the pressure of profit-taking.

Furthermore, China International Capital Corporation analyzed that the market is unlikely to completely retrace its gains unless extreme situations occur. The actual improvement of the market is due to marginal policy adjustments, the return of overseas capital, and valuation repairs.

China International Capital Corporation predicts that as the market gradually returns to fundamentals, the Hang Seng Index may fluctuate around 18,000 points, and the market is looking forward to new catalysts to promote further upward trends.

Why is the Hong Kong stock market weak?

China International Capital Corporation pointed out that the root cause of the weakness and pressure on the growth of the Hong Kong stock market is credit contraction, especially since the existing policy strength and speed may still need to be strengthened, which is insufficient to offset the faster contraction of private credit. The financial and credit data for May further proves this point. The year-on-year increase in new loans decreased by 401.9 billion yuan, and the year-on-year growth rates of M1 and M2 further declined to 7.0% and -4.2%, respectively.

Private sector credit expansion is insufficient, and credit is under pressure. In May, short-term and medium- and long-term loans for the residential sector increased by 174.5 billion yuan and 117.5 billion yuan, respectively, which indicates that the leverage of the residents is still weak, and the boost in credit demand from the real estate policy needs to be further transmitted.

From the government side, although fiscal impulses expanded in the third quarter of last year, they slowed down again at the beginning of this year and failed to offset the private sector credit contraction. Although the issuance of government bonds accelerated in May, the overall fiscal efforts were still slow. The year-on-year increase in fiscal deposits in May was 526.4 billion yuan, which also indicates that fiscal deposits were not released in time. To solve this problem, it is essential to increase fiscal leverage and reduce financing costs, and scale and speed are equally important.

China International Capital Corporation estimates that a fiscal increase of 4-5 trillion yuan and a 75-100 basis point reduction in 5-year LPR may be effective, but it is difficult to achieve this scale, and the later the action, the larger the scale required.

However, China International Capital Corporation points out that the Hong Kong stock market still has comparative advantages over the A-share market. This is mainly reflected in: lower valuation; Hong Kong stock market is more sensitive to liquidity, and the proportion of overseas capital allocation is low; profit-making cyclical and Internet-related sectors have a higher proportion in the Hong Kong stock market, while the real estate and manufacturing chains with more profit pressure are mostly concentrated in the A-share market.

In addition, if the Federal Reserve opens interest rate cuts this year, the Hong Kong stock market, under the linked exchange rate system, will benefit more than the A-share market.

How does the market look in the future?

China International Capital Corporation predicts that policies are still expected to continue to be introduced, but 'strong stimulus' is unrealistic. Therefore, the market may show more short-term volatility. Among the three main driving forces of the market, risk premium has been repaired, short-term space for risk-free interest rates is limited, profit is the key to opening up more space in the market, but this is highly dependent on the opening of the credit cycle.

Editor/Somer