Benefiting from improved overseas liquidity, strong performance of industry leaders, and proactive macroeconomic policies in China, the Hong Kong stock market has continued to rebound. In the past eight months,$Hang Seng Index (800000.HK)$the cumulative increase and the maximum increase were 3.7% and 10.7%, respectively.$Hang Seng TECH Index (800700.HK)$the cumulative increase/maximum increase were 1.2% and 10.5%.

The increase in the Hong Kong stock market in August was partly due to the gradual reduction of interest rates by central banks around the world, which eased the liquidity pressure in overseas markets. As inflationary pressures in major economies such as the United States, Germany, and France eased, several central banks globally began to enter an interest rate cutting cycle. For example, the Bank of England announced a 25 basis point rate cut on August 1st, and Federal Reserve Chairman Powell hinted at a possible interest rate cut in September during his speech on August 23rd. These developments improved the overseas liquidity expectations for the Hong Kong stock market. Furthermore, considering that the valuation of Hong Kong stocks has reached a historically low point, foreign funds are expected to flow back in.

The interim reports of Hong Kong stocks show a continued increase in net profit attributable to shareholders.

In the first half of 2024, the net profit attributable to shareholders (net profit attributable to parent company shareholders) of listed companies in the Hong Kong stock market showed a continuous upward trend compared to the same period last year. According to the regulations of the Hong Kong Stock Exchange, listed companies in Hong Kong are required to disclose their interim performance reports within three months after the end of the first six months of each financial year.

As of September 2nd, 2024, 2,356 listed companies in the Hong Kong stock market have published their interim performance reports for 2024, accounting for 89.1% of the total number of listed companies. If the net profit attributable to shareholders in 2023 is used as the benchmark, the disclosure rate is 99.7%, which basically reflects the overall performance of the Hong Kong stock market.

In terms of net profit growth, the year-on-year growth rate of net profit attributable to shareholders in the first half of 2024 in the Hong Kong stock market continued to increase, while the growth rate in the A-share market slowed down. Specifically, the cumulative year-on-year growth rate of net profit attributable to shareholders in the first half of 2024 and the full year of 2023 in the Hong Kong stock market were 6.2% and 3.9% respectively. In comparison, the corresponding growth rates in the A-share market were -3.1% and -2.5% respectively.

If we observe from the half-yearly year-on-year growth rate, the profit growth rate in the first half of 2024 in the Hong Kong stock market has slowed down, and the A-share market has also shown a downward trend. The half-yearly year-on-year growth rates of net profit attributable to shareholders in the first half of 2024 and 2023 in the Hong Kong stock market were 6.2% and 13.6% respectively, while in the A-share market they were -3.1% and -0.7% respectively, indicating that the decline in profit growth rate in the Hong Kong stock market exceeded that of the A-share market.

In the first half of this year, the overall ROE of all Hong Kong stocks rose slightly to 6.9%, with the improvement in net margin being the main reason.

In the first half of 2024, the ROE of Hong Kong stocks increased slightly to 6.9%, compared to 6.8% in 2023. This growth trend indicates a continuous improvement in profitability. However, the ROE of Hong Kong stocks is still at a historically low percentile level since 2006. Meanwhile, in the first half of 2024, the ROE of A-shares was 8.0%, lower than 8.5% in 2023, although it decreased, it remains higher than Hong Kong stocks, and the ROE of A-shares is also at a historically low percentile level since 2006.

Looking at the trend of changes in ROE, in the first half of 2024, the ROE of Hong Kong stocks showed a slight increase, while the ROE of A-shares decreased. This change suggests that the profitability of Hong Kong stocks may be strengthened. It is expected that with the recovery of earnings growth in the second half of the year, the ROE of Hong Kong stocks is likely to continue its improvement trend.

Haitong Securities pointed out that the main factor driving the increase in the ROE of Hong Kong stocks in the first half of 2024 is the improvement in net margin. Specifically, the net margin of Hong Kong stocks in the first half of 2024 was 5.3%, compared to 4.9% in 2023, reflecting the enhanced profit-making ability of companies. However, the asset turnover ratio of Hong Kong stocks in the first half of 2024 was 0.215 times, slightly lower than 0.227 times in 2023, indicating that the level of economic activity still needs to be improved. At the same time, the leverage ratio (equity multiplier) of Hong Kong stocks in the first half of 2024 and 2023 was both 6.1, showing that the debt level of enterprises remained stable without significant changes.

In the first half of the year, there was a significant improvement in the profitability of Hong Kong stocks in the information technology and energy materials sectors.

Looking at specific sectors, information technology and optional consumer sectors performed the strongest in terms of profit growth in the Hong Kong stock market in the first half of the year. Especially driven by artificial intelligence technology, the performance of technology stocks significantly improved, with the profitability of the information technology sector in Hong Kong stocks particularly outstanding. The net income attributable to the parent company of the software and services industry increased by 72.5 percentage points in the first half of the year.

Benefiting from policy stimulus for service consumption and the growth in residents' demand for spiritual and cultural consumption, the performance of the optional consumer sector also improved. The profit growth rate of the consumer services industry significantly rebounded, with the net income attributable to the parent increasing by 260.4 percentage points in the first half of the year.

Against the global backdrop, the media industry also showed a remarkable profit growth rate, with the net income attributable to the parent increasing by 71.4% in the first half of the year, compared to a 43.2% decrease in the previous fiscal year. The profit of the food and major retail industry also saw significant improvement, with the net income attributable to the parent increasing by 225.4 percentage points in the first half of the year.

In the energy and materials sectors, due to the rise in global commodity prices, the profit growth of these upstream industries has also rebounded, with the year-on-year growth of net income and revenue in the materials and energy sectors in the first half of the year increasing by 53.0 percentage points and 17.0 percentage points, respectively.

However, the pharmaceutical sector has been impacted by factors such as increased industry regulation and obstacles to overseas expansion for CXOs, resulting in a significant decrease in profit growth. The net income of the medical equipment and services industry in the first half of the year decreased by 87.2 percentage points year-on-year, while the pharmaceutical, biotechnology, and life science industries decreased by 47.3 percentage points.

Looking ahead, Haitong Securities points out that with the implementation of a series of growth-stabilizing policies after the Third Plenary Session and the Politburo meeting, the economy is expected to gradually recover, and it is expected that the profit growth rate of Hong Kong stocks will continue to rebound in the second half of the year.

Editor/Rocky