The Federal Reserve has finally opened the door to interest rate cuts, with a 50 basis point cut in September. According to the Fed's dot plot, there may be a total of 100 basis points of rate cuts this year. Despite the strong performance of the U.S. stock market, the rate cut may not necessarily attract large-scale capital inflows to Hong Kong stocks. However, at least the renminbi exchange rate has turned upward, which means that one of the important external factors that has restrained Hong Kong stocks for the past two years has been lifted.

After the rate cut by the U.S. dollar, the exchange rate is approaching the 7 level. With the alleviation of exchange rate pressure, it provides more loose windows and conditions for the domestic market, and lower financing costs are more suitable for the current low-growth environment. Therefore, after the 50 basis point rate cut by the U.S. dollar, it can be seen that in the past two days $Hang Seng TECH Index (800700.HK)$ a rise of nearly 5%, indicating that smart money in the market is accelerating their layout in the interest rate cut trend.

For example, the Hang Seng Tech Index leader $TENCENT (00700.HK)$ after two months of consolidation, its stock price is approaching a new high for the year. $MEITUAN-W (03690.HK)$Please use your Futubull account to access the feature.$BABA-W (09988.HK)$ The stock price has also reached a new high for the year.

First, looking at the recent trend of internet stocks' buybacks, it is evident that they have been effective.

First, looking at the recent trend of the Hang Seng Tech Index, since the explosion of the Yen Carry trade in early August, global stock markets have become more volatile. Since early August, A-shares have continued to weaken, falling more than 5%, but the Hang Seng Tech Index has risen nearly 8%, not following the decline of A-shares, while the S&P 500 and Nasdaq have risen nearly 5%. In terms of valuation, Hong Kong stocks as a whole still have the lowest valuation in the market, with the Hang Seng Index currently trading at a P/E ratio of only 8.8, lower than the CSI 300's P/E ratio of 11 and the Nikkei 225's P/E ratio of 20.

In other words, in the past month, the trend of the Hang Seng Tech Index has been independent and less influenced by external factors. With the improvement of liquidity and policy space, the Hang Seng Tech Index, which has already shown a strong trend in the recent period, has even more reason to be favored by the market.

Here are two examples to illustrate the changes in Hong Kong stocks. First, the explosion of the Yen Carry trade in early August caused a global stock market crash, but A/H shares, which had low foreign investment allocations, did not fall. From August to now, A-shares continued to fall due to poor economic data, but the Hang Seng Tech Index, which usually follows A-shares, broke free from the drag of A-shares and even if the U.S. stock market corrected in August, the Hang Seng Tech Index was not greatly affected, still one of the top-performing indices in the past month.

Another example is$PDD Holdings (PDD.US)$Second-quarter report exposure + $JD.com (JD.US)$ Being cleared by the second largest shareholder walmart.

In the past 2 years, whenever a leading Chinese stock has an exposure, other internet-related stocks are also affected by a significant drop. This not only refers to performance exposure, but also to the significant drop caused by shareholding reduction by shareholders. For example, in November last year, it was reported that the Ma Yun family trust fund planned to reduce its stake in Alibaba by 0.87 billion US dollars. Even unrelated companies like Tencent, JD.com, and Meituan all fell by 5-10% on the same day, and internet stocks did not recover within the following month.

But looking at the situation of PDD's exposure and Walmart's clearance of JD.com, for Tencent, Alibaba, Meituan, and JD.com, the impact is there, but more on the day of the event. After the event, the stock prices have recovered quickly, showing a more positive side from the market. It's no longer as pessimistic or volatile as before.

This indicates that after undergoing multiple stress tests in Chinese stocks, the Hang Seng Tech Index now reacts more rationally to negative news, and will not overreact as it did before. This is beneficial for restoring market investors' confidence, as no one wants to invest in an overreacting market.

It is worth noting that the stability of the Hang Seng Tech Index is due to the significant effect of large buybacks by internet-related stocks. Although the stock prices of internet companies in the first half of the year do not seem to have been driven much by buybacks, according to the second-quarter report, the direct return generated by internet stocks for shareholders is very high. This return is much better than the market-scrambling 2% national bonds, especially as it expands the space for rate cuts. Therefore, internet stocks with stable growth capabilities should be given more attention, rather than constantly holding on to lower-yielding national bonds.

According to disclosures from various internet stocks, Tencent repurchased a total of HK$52.3 billion in the first half of the year, with a total shareholding reduction of approximately 1.45%; Alibaba repurchased a total of $10.6 billion, with a total shareholding reduction of about 6%; JD.com repurchased a total of $3.3 billion, with a total shareholding reduction of about 7.1%.

Assuming Tencent maintains daily repurchases of $1 billion for the rest of the year, after deducting silent period + public holiday days, Tencent's annual repurchases will be between nearly $130-140 billion, plus a $33 billion RMB dividend, resulting in a direct shareholder return rate of 5%. Adding an expected neutral 8% performance growth, Tencent's EPS is expected to exceed 10% for the year. Similarly, assuming consistent repurchases and dividends, Alibaba's total shares will decrease by nearly 12% this year, while JD.com's total shares will also decrease by about 10%.

If one were to argue that internet stock repurchases only support stock prices and are not enough to drive a rally, the facts that Alibaba is included in the Hong Kong stock connect, there have been interest rate cuts in China and the US, continuous southbound fund inflows, and optimization of the internet stock competition landscape are emerging catalysts for the market. While these factors may not be particularly impressive on their own, when combined, they will resonate to produce a greater effect.

When investing in the Hang Seng Tech Index or Hong Kong stocks, the most important thing is to seize the opportunity when the market changes. There was a market uptrend in Hong Kong stocks in April this year, with the Hang Seng Index rising by 21% within a month. Now is probably the second market uptrend of Hong Kong stocks this year, although the resilience may not be as strong as in April. However, under the influence of many factors, the safety of the Hang Seng Tech Index is more than sufficient.

Second, the optimization of the competitive landscape of the Hang Seng Tech Index.

Looking at the components of the Hang Seng Tech Index being divided, it would be more appropriate to intervene through ETFs at this stage, firstly because the ETF's increase is not inferior to that of individual stocks. Secondly, because this round of rallies is more macro improvement-driven, rate cuts are positive drivers for most companies.

For example, among the top ten largest holdings, Tencent, Meituan, Xiaomi, and Alibaba are all approaching new highs for the year. Purchasing ETFs will allow investors to buy Tencent, Meituan, and Alibaba at their new highs for the year. $XIAOMI-W (01810.HK)$ , you can also buy JD.com, which is at a low valuation. $KUAISHOU-W (01024.HK)$Please use your Futubull account to access the feature.$NTES-S (09999.HK)$Please use your Futubull account to access the feature.$LI AUTO-W (02015.HK)$ , and the second quarter reports of these companies are not bad either. The valuation has also dropped, so now is a more appropriate time to enter.

In addition, especially the top ten heavily weighted stocks such as Meituan, Alibaba, and jd.com, which have relatively large fluctuations, the current competitive landscape has been optimized. For example, Meituan and Douyin have found everyone's bottom line of profitability, which is the repair of the profitability of local life, the incremental delivery, and the loss reduction effect of Xiao Xiang Supermarket. The growth potential of Meituan is sufficient.

Similarly, Alibaba and jd.com have lowered their posture and prepared for the attack of pdd holdings. As long as they hold on to 0-1% growth rate and revenue is not negative growth, they can also generate considerable returns for shareholders through their own cash flow advantages and share repurchases. For example, it is expected that Alibaba's total share capital will be reduced by 12% for the whole year, and jd.com's total share capital will also be reduced by 10%. However, the marginal change in the e-commerce industry is that pdd holdings no longer squeezes merchants so much, and pdd holdings, Alibaba, and jd.com have all started to subsidize merchants, rather than engaging in violent price competition, which indicates an expectation for improving industry profits.

Conclusion

Overall, in the current low valuation types with logical consistency, internet-related stocks are more promising. Whether it is from the performance, shareholder returns, or the competitive landscape in the first half of the year, there are not many companies in the current environment that can provide stable returns like internet-related stocks. This is worth considering.

Potential catalysts have gradually materialized, with over 200 billion inflows of southbound funds in the past four months, easing exchange rate pressures and expanding domestic potential policy space. In the combination of these factors, it is indeed a good time to seize the opportunity for Hong Kong stocks to return to rational pricing.

Editor/new