Following Friday's closing, the Hong Kong stock market ushered in a mid-year summary. As of the closing day, the state-owned enterprises and other indexes have risen by 9.77% and 3.94% respectively, closing at 6331.86 points and 17718.61 points. The technology index fell 5.57% over the same period to close at 3554.45 points.$Hang Seng Index (800000.HK)$If we take the global index as an example, it leads major indexes such as S&P 500, FTSE 100, and Dow Jones with a nearly 10% half-year increase

Using the global index as an example,$Hang Seng China Enterprises Index (800100.HK)$with nearly 10% half-year increase, leading major indexes such as S&P 500, FTSE 100 and Dow Jones.

Note: The performance of the global index in the first half of the year (as of last Friday)

It is not surprising that the state-owned enterprise index performed well in the first half of the year. First of all, looking at the performance of the constituent stocks of the index,$CNOOC (00883.HK)$, $PETROCHINA (00857.HK)$, $CHINA UNICOM (00762.HK)$, $CHINA SHENHUA (01088.HK)$companies starting with the middle letter of 中字头 performed well, with increases of 81.52%, 60.99%, 50.84%, and 48.19% respectively.

Note: The top 20 constituent stocks with the highest increase in the first half of the year of the state-owned enterprise index.

In fact, most constituent stocks of the state-owned enterprise index have several characteristics, such as high dividend yield, abundant cash flow, and low valuation. Taking China National Offshore Oil as an example, the board of directors recommended a dividend of HKD 0.66 per share (including tax) at the end of 2023 when the company announced its 2023 performance at the end of March.

It is worth noting that in the 2024 operating strategy announced by China National Offshore Oil in January, it was clearly stated that the annual dividend payment rate from 2022 to 2024 is expected to be no less than 40%; regardless of the company's performance, the absolute value of annual dividend from 2022 to 2024 is expected to be no less than HKD 0.70/share (including tax).

In addition to the strong performance of the constituent stocks of the state-owned enterprise index, the index also benefited from several other aspects, such as the deepening of state-owned enterprise reform, industry performance, and improving market expectations.

Deepening State-owned Enterprise Reform: According to the State-owned Assets Supervision and Administration Commission of the State Council, state-owned enterprises are undergoing deep reform and upgrading actions, increasing reform planning and implementation, strengthening end-to-end effects, and striving for greater breakthroughs in key areas. This reform action may enhance the market's confidence in state-owned enterprises.

Improving Market Expectations: The market may hold a positive view on the future development of state-owned enterprises, especially under the background of national policy support and gradual economic recovery, and investors' confidence in state-owned enterprises has increased.

Improving Industry Performance: Certain industries may have performed strongly due to increased market demand or unique advantages, thus driving the overall strength of the state-owned enterprise index.

The Hong Kong stock market has once again ushered in a technical bull market.

In addition to the strong performance of the state-owned enterprise index, the performance of other indexes is also worth mentioning.

According to relevant statistics, from April 22 to May 6, the Hang Seng Index had ten consecutive rises, setting a record for the longest consecutive rise since 2018. After a short two-day correction, the Hang Seng Index continued to rise strongly. As of May 20, the highest increase in the Hang Seng Index this year was 15.19%.

During the same period.$Hang Seng TECH Index (800700.HK)$The performance is not inferior to other indices. The index has been strong from April 22 to May 20, with cumulative increase of nearly 30% during this period.

At that time, the performance of the Hong Kong stock market really surprised investors and entered a technical bull market. China International Capital Corporation pointed out in its previous research report that the rapid rebound since late April was mainly driven by emotional repair brought by partial fund reallocation and the decline of risk premium, but the changes in risk-free interest rates and earnings were relatively limited.

However, after a short-term surge, the Hong Kong stock market has fallen again. The Hang Seng Tech Index has fallen by 13.57% from May 20 to June 28th. Regarding this correction, China Galaxy Securities pointed out that after the hawkish speech of the Federal Reserve officials, the market's expectation of dry interest rate cuts cooled again, and the unilateral upward trend since late April ended, and the Hong Kong stock market as a whole turned to the stage of oscillation decline.

Can the Hong Kong stock market usher in a big rebound in the second half of the year?

According to institutional research reports, after experiencing a period of adjustment, the Hong Kong stock market is expected to usher in structural opportunities in the second half of the year, especially against the backdrop of policy support and improved industry sentiment. Investors should focus on companies with stable cash flow and high dividends, and closely monitor changes in macroeconomic policies and market sentiment.

China Galaxy Securities pointed out that this year, the (expected) favorable policies on the mainland will benefit the Hong Kong stock market. It is expected that the market will maintain an upward trend in waves in the second half of the year. Paying close attention to the positive signals of the Fed's monetary policy and the domestic fundamentals is the key.

Industrial Securities stated that investing in Chinese stocks should focus on the middle level and find the "essence of endurance" in industries where competitive patterns are improving. In addition, the report advocates the equity culture of "emphasizing shareholder returns" and believes that dividends and repurchases are practices worth learning from in developed overseas markets, while China A shares and Hong Kong stocks' equity culture is gradually shifting from financing to returning shareholders.

China International Capital Corporation's report focuses on "scarce" assets in the current environment, believing that in an overall macro environment where leverage is not significantly increased, more structural opportunities emerge in a volatile market. The report pointed out that companies that can provide sufficient and stable free cash flow are becoming more and more attractive.

They also pointed out that although facing internal and external uncertainties, the valuation attractiveness of the Hong Kong stock market has gradually emerged after a period of adjustment, especially considering the resilience of the US economy and the gradual force of China's policies, which has eased the pessimism of the market on the Hong Kong stock market.

However, a greater increase in the Hong Kong stock market still needs to wait for a more specific signal of a Fed rate cut. As China Galaxy Securities pointed out, the trend of foreign capital depends on the marginal changes in the expectation of a Fed rate cut.

In addition, the current valuation of the Hong Kong stock market is in the historical low range, and its valuation is relatively low among major global stock indices, which is more attractive to global funds. The upward space of valuation in the second half of the year still needs to wait for a more specific signal of a Fed rate cut.

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