Source: China Securities Co., Ltd.
Author: Chen Guo, He Sheng
In recent times, Hong Kong stocks have continued to rise, and the core reason is the improvement in overseas liquidity. After analyzing the fund environment of this round of market, we believe that Hong Kong stocks currently do not have an advantage in the global allocation of overseas liquidity and cannot replicate the surge in April. Looking ahead, we believe that current funds can gradually allocate to the inflow of foreign investment after the US presidential election at the end of the year. The main investment theme for Hong Kong stocks in the future remains dividend sectors. Additionally, internet giant companies that continue to conduct large-scale dividend buybacks provide new investment opportunities.
Three macro factors, including domestic fundamentals, overseas liquidity, and the distribution of overseas liquidity, influence the Hong Kong stock market. As an offshore market, the liquidity of the Hong Kong market is closely related to the global market. In recent years, mainland companies have gradually become the main entities listed in Hong Kong, which has a close relationship with domestic fundamentals. Since the second half of 2023, the competition for liquidity in the Asia-Pacific market has intensified, and the allocation of funds also has a significant impact on the liquidity of the market. In addition, overseas risk factors, such as war, debt crisis, and energy crisis, need to be considered separately.
What are the driving factors behind the recent rise in Hong Kong stocks?
While the market's focus has shifted from carry trade reversal to interest rate cut trade, the recent substantial improvement in overseas liquidity has become the main force driving the rise of the Hong Kong stock market, with the expectation of a continuous increase in the rate cut by the Federal Reserve and the temporary suspension of interest rate hikes by the Bank of Japan.
Will the strong market performance in April be replicated in this round?
The allocation ratio of overseas liquidity has a significant impact on Hong Kong stocks. In the recovery of overseas liquidity in April, the proportion of liquidity allocated to Hong Kong stocks far exceeds that of other markets. In contrast, Hong Kong stocks are at a disadvantage in the global liquidity competition and it is difficult to form a strong market trend.
What is the current allocation logic?
We believe that the next wave of Hong Kong stocks worth looking forward to is likely to occur after the US general elections at the end of the year, and long-term funds can gradually start to deploy. Currently, high dividend AH shares still have a certain margin of safety and high cost performance. Southbound funds continue to flow in, enhancing the pricing power of the southbound, and are exceptionally bullish in the near term.$TENCENT (00700.HK)$All major internet-related Hong Kong listed companies are benefiting from the dividend repurchase boom, providing new areas of interest.
Risk warning
(1) Geopolitical risks. If the management of US-China relations is not handled well, it may affect foreign capital's preference for Hong Kong stocks. At the same time, geopolitical hotspots such as the Russia-Ukraine conflict and the Middle East issue may face the risk of deteriorating, which may have unfavorable effects on the market if crises occur.
(2) If the US economy continues to maintain its resilience and economic data such as labor market and retail perform well, then the risk of a US recession may be reassessed. At the same time, inflation risks will also face rebounds, and the Fed's tightness against inflation will continue, and global liquidity may be looser than expected, putting pressure on Hong Kong stock liquidity.
(3) Insufficient effectiveness of domestic economic recovery or steady growth policies. If subsequent data on domestic real estate sales, investment, etc. struggle to recover, the long-accumulated risks of local government financing vehicles may begin to escalate, ultimately disproving the economic recovery and putting pressure on the overall market trend. Overly optimistic pricing expectations will face correction.
Editor/rice