First Shanghai stated in the Hong Kong stock market outlook report for the fourth quarter that with the beginning of interest rate cuts at home and abroad, the current global liquidity trend is improving, and the inflow of internal and external capital into the undervalued Hong Kong stock market is a proper allocation of Hong Kong stocks at this time. The bank believes that after the Fed's rate cut overseas, the Hong Kong Monetary Authority immediately reduced the benchmark interest rate from 5.75% to 5.25%, and Hong Kong commercial banks also subsequently lowered the prime loan rate by 25 basis points, reducing the financing costs locally in Hong Kong, directly improving the Hong Kong dollar liquidity environment, making the Fed's easing effect on Hong Kong stocks more directly transmitted.

Secondly, domestically, the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission jointly announced a series of policies to promote economic and capital market development. The main measures include: lowering the reserve requirement ratio by 0.5 percentage points and injecting approximately 1 trillion RMB of liquidity into the market. In addition, depending on market conditions, the reserve requirement ratio may be further lowered by 0.25 to 0.5 percentage points; the average mortgage interest rate will be lowered by approximately 0.5 percentage points, reducing residents' mortgage interest expenses, thereby promoting consumption and investment; providing high liquidity assets to the market through the creation of an easy exchange of securities, funds, and insurance companies. At the same time, setting up special refinancing to support stock buybacks and shareholdings by listed companies and major shareholders.

The bank expects the upper limit of the PE ratio for the Hang Seng Index this year to be 11 times, with a lower limit of 9 times, corresponding to the target range of 18,000 to 22,000 points. In 2024, the upper limit of the PE ratio of the Hang Seng China Enterprises Index will be 10 times, with a lower limit of 8 times, corresponding to the target range of 6,000 to 8,000 points. Compared to the current index levels, the Hang Seng Index and the Hang Seng China Enterprises Index still have the potential for a maximum increase of 16% and 19% respectively.

First Shanghai mentioned focusing on three major investment sectors: high-quality high-dividend stocks, internet leaders, high-end manufacturing, and companies with overseas capabilities. The bank remains bullish on industries with growth attributes such as the high-end manufacturing industry chain for overseas markets, automobiles and auto parts, bringing attention to the industry opportunities brought by their investment cycles. The bank recommends paying attention to stocks like BYD (01211.HK), Hua Hong Semiconductor (01347.HK), Times Electric (03898.HK), BYD Electronic (00285.HK), Contemporary Amperex Technology (300750.SZ), Xiaomi Corporation-W (1810.HK), and Midea Group (00300.HK) among others.