In the morning session today, individual stocks in the Hong Kong stock market, such as Huazhong In-V, plummeted by nearly 90%. This stock was not a micro-cap stock or a penny stock before the plunge. The market value was approximately 3.5 billion Hong Kong dollars at the close yesterday, and the closing price was above 2 Hong Kong dollars per share. However, the lowest price this morning dropped to 0.22 Hong Kong dollars per share, showing a violent sell-off. This type of sell-off has been occurring frequently recently. What exactly happened?

Shimao Group was also hit hard today, with its stock plummeting by nearly 30% at one point. Other stocks such as Xuhui, Powerlong Real Estate, Sino-Ocean GP, and Agile Group also experienced a temporary drop of over 15%. Last night, the Shanghai and Shenzhen Stock Exchanges announced the latest list for the Hong Kong Stock Connect program, removing 33 stocks, including several mainland real estate stocks.

In fact, the performance of the Hong Kong stock market has not been too bad recently, and many institutions are bullish on the Hong Kong stocks against the backdrop of the interest rate cut in the United States. Can this trend continue?

Confused by the drop.

In the morning session of the Hong Kong stock market, Huazhong In-V's stock price plummeted by nearly 90% at one point, and then the decline narrowed but still remained above 80%. The lowest price reached 0.22 Hong Kong dollars per share, and the trading volume increased to over 0.25 billion Hong Kong dollars.

According to public information, the company is mainly engaged in the design and manufacture of molds and tools for the production of specific products, as well as the development and manufacturing of new products. The company's subsidiaries include Huazhong Investment Co., Ltd., Huazhong Investment (Hong Kong) Co., Ltd., and Ningbo Huazhong Plastic Products Co., Ltd. Through its subsidiaries, the company is also involved in the sales and processing of rubber and plastic products and spare parts.

Previously, Huazhong In-V released its semi-annual report, stating that the group achieved a revenue of 775 million yuan (RMB, the same below) during the period. The attributable net profit to the owners of the parent company increased by 17.5% to 18.24 million yuan, with a basic earnings per share of 0.0103 yuan. The market value at the close yesterday reached nearly 3.5 billion Hong Kong dollars, and the closing price was above 2 Hong Kong dollars per share.

So why did the stock suddenly plummet? In fact, this is not the first case in the recent Hong Kong stock market. Ascendas Group also experienced a significant drop. Analysts believe that the main reasons for this kind of stock market decline are: first, the high concentration of shareholding, which has even led to the risk of delisting for some individual stocks; second, problems with the pledge of shares by major shareholders, resulting in forced liquidation; third, some stocks being manipulated maliciously; fourth, potential liquidity problems in the overall market. From a news perspective, Huazhong In-v has not yet shown any obvious bearish signals.

Today, it's not just Huazhong In-v that experienced a significant drop, many mainland real estate stocks have also collapsed. Shimao Group fell nearly 30% at one point. Xuhui, Powerlong Real Estate also experienced a 20% drop, while Sino-ocean Group, Agile Group, and others also saw their stock prices drop by more than 15% at one point. Although the decline has narrowed later on, it is still relatively large.

On the news front, the Shanghai and Shenzhen Stock Exchanges announced the latest list of Hong Kong stocks, removing 33 stocks, including several mainland real estate stocks.

Advantages of Hong Kong stocks

Although Hong Kong stocks have recently experienced frequent plunges and sell-offs, their overall performance is still relatively strong, thanks to the advantages of Hong Kong stocks.

According to EPFR statistics, last week, active foreign capital outflow was about 0.186 billion USD, and overall foreign capital outflow was about 0.025 billion USD, both better than the previous value. Market views believe that the first half of 2023 may be the bottom of performance, and the profit growth rate in the first half of 2024 may be higher than that in the second half of 2023; considering the distribution of industry structure in Hong Kong stocks and factors such as the three major Alpha of "good companies", the profit growth rate of Hong Kong stocks may have positive expectation difference and be stronger than macro data and A-shares.

In terms of corporate profits, overseas Chinese stocks have basically completed the disclosure of their 2024 interim results. The non-financial sector's revenue in the first half of the year decreased by 1.3% year-on-year, remaining the same as 2023, and still weak. However, profits increased slightly by 2.3% year-on-year, which is indeed faster than the 0.2% growth in 2023. In addition, the scale of share repurchases in the Hong Kong stock market has increased significantly, with a total repurchase amount exceeding HKD 180 billion since the beginning of the year, compared to more than HKD 120 billion for the whole of last year.

In terms of valuation, according to Tianfeng Securities' calculation, as of September 6th, the Hang Seng Index's forward PE ratio in the next 12 months is discounted by -1.7 standard deviations compared to 2019, at around 8.0% of its historical percentile; the Hang Seng Index's forward PE ratio relative to the MSCI global index is discounted by -0.2 standard deviations compared to 2019, at around 81.1% of its historical percentile; the Hang Seng Index's equity risk premium is lower than the historical median by 1.8 standard deviations, at around 89.0% of its historical percentile. Therefore, it is worth continuing to be bullish.

However, China International Capital Corporation believes that from an external perspective, the US presidential election and the window for interest rate cuts are about to open. On the evening of last Friday, the last data before the September FOMC non-farm employment was announced in the United States. However, the overall results disclosed by the data were relatively mild, and did not completely alleviate the market's concerns about recession, nor did they provide a clear signal of the magnitude of the interest rate cut. The market is still caught in the dilemma of greater recession pressure and insufficient rate cut. In addition, the second debate of the US election on September 10 and the recent volatility in overseas markets have led to more variables. Considering that the Hong Kong stock market is more sensitive to external disturbances than the A-share market, this will have an impact on the market in the short term.

Editor/Emily