According to the Caixin app, gtja released a research report stating that the risk-free rate in the Hong Kong stock market continues to decline, leading to the continuous recovery of Hong Kong stock assets valuation and prices. The future trend of Hong Kong stocks is expected to be mainly upward. The main driver of the current continuous rise in Hong Kong stocks is that major overseas central banks have officially started an interest rate cut cycle, with larger than expected rate cuts, promoting market liquidity expectations and driving the Hong Kong stock market.

There has been a trend of the RMB strengthening, further opening up domestic policy space, the policy combination announced by the Governor of the People's Bank of China at the State Council Information Office meeting, and the significantly positive statements made by the Political Bureau in September have greatly boosted confidence in the Hong Kong stock market.

The bank believes that as domestic economic support policies continue to be implemented, economic expectations are showing marginal improvement; with the confirmed trend of overseas interest rate cuts, the Hong Kong stock market will first repair the valuation gap and the future trend will be mainly upward. Rate-sensitive industries have greater price elasticity, including internet leaders, pharmaceuticals, and consumer-related industries.

GTJA's main opinions include:

Since the opening of the Shanghai-Hong Kong Stock Connect in November 2014, the Hong Kong Stock Connect has become the preferred way for mainland investors to allocate funds to the Hong Kong stock market, with continuous net inflows of domestic capital into the Hong Kong stock market. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes are cross-border investment mechanisms introduced by the Hong Kong Stock Exchange, with the Shanghai-Hong Kong Stock Connect opening on November 17, 2014, and the Shenzhen-Hong Kong Stock Connect opening on December 5, 2016. In addition to including most Chinese companies, the Hong Kong Stock Connect also includes most international companies listed on the Hong Kong main board, providing mainland Chinese investors with overseas investment channels.

Since the opening of the Shanghai-Hong Kong Stock Connect, mainland Chinese funds have continued to flow into the Hong Kong stock market, and the Hong Kong Stock Connect channel has replaced the QDII (Qualified Domestic Institutional Investor) as the preferred way for mainland investors to allocate assets offshore. As of September 30, 2024, the cumulative net inflow of southbound funds into the Hong Kong stock market is close to 3.4 trillion Hong Kong dollars, with an average daily net inflow of approximately 1.5 billion Hong Kong dollars into the Hong Kong stock market.

Aside from holidays when trading through the Hong Kong Stock Connect is paused, it has become an important part of the liquidity in the Hong Kong stock market. With the significant increase in trading activities by mainland funds through the Hong Kong Stock Connect in the Hong Kong stock market, it provides significant liquidity support that cannot be ignored.

According to the data from HKEX, the daily average turnover of the Hong Kong stock connect accounts for about 15% of the total daily turnover of the Main Board of the Joint Exchange. The trading days of the Hong Kong stock connect are only trading days in both Mainland China and Hong Kong, and can be opened when settlement arrangements are met. Therefore, although the Mainland celebrates the golden week, the Hong Kong stock market operates normally, but the Shanghai-Hong Kong Stock Connect is closed during this period, and the southbound funds are suspended from trading.

The influence of southbound funds in the Hong Kong stock market is gradually increasing, with the influence exceeding 10% in some industries. According to iFinD's data calculation, the total market value of southbound funds' holdings in the medical care, telecommunications, and information technology industries accounts for 11.3%, 11.1%, and 10.9% respectively, reflecting that southbound funds have significant influence in most industries in the Hong Kong stock market.

During Mainland holidays, due to the absence of southbound funds, it is impossible to gauge the market sentiment solely from the stock prices, and the stock price performance during the holidays in the Hong Kong market can to some extent reflect the attitudes of foreign and local funds from China and Hong Kong towards the Hong Kong stock market.

Based on historical performance, even if Mainland funds are absent during the golden week, the Hong Kong stock market mostly sees positive returns during this period. Reviewing the performance of the Hong Kong stock market during the golden week over the past 10 years, the historical probability of the Hong Kong stock market gaining positive returns during the golden week exceeds 70%, with only downturns in 2018 and 2023 during the National Day holiday. The Hang Seng Index and the Hang Seng Tech Index have probabilities of gaining positive returns during the National Day holiday over the past 10 years reaching 70.0% and 77.8%, with average returns of 1.54% and 1.82% respectively.

The Hong Kong stock market performed the best during the National Day holiday in 2015, with the Hang Seng Index and the Hang Seng Tech Index accumulating increases of 8.01% and 6.62% respectively. This was mainly due to the boost in the real estate industry from the currency-driven housing reform and initiated a bull market in the Hong Kong stock market centered around the property chain in 2015.

Looking at industry performance, most industries see positive returns during the National Day holiday. In terms of average returns, the best-performing industries include energy, raw materials, information technology, and finance, with cumulative increases outperforming the Hang Seng Index (which rose by 1.54%), with increases of 2.62%, 2.08%, 2.03%, and 1.75% respectively.

Risk factors: 1) Slower-than-expected domestic economic recovery progress; 2) Escalation of international geopolitical events; 3) Repeated disturbances in overseas recession expectations.

Editor/ping