Stimulated by an unconventional policy mix, Hong Kong stocks surged, leading the global market.

During the National Day holiday period, in the absence of fund inflows via the Stock Connect, both local and foreign funds continued to pour into Hong Kong stocks, resulting in a 10.2% weekly gain, hitting a two-and-a-half-year high by Friday's close. $Hang Seng Index (800000.HK)$ with a cumulative increase of 17.38%. $Hang Seng TECH Index (800700.HK)$ It is worth noting that so far this year, the Hang Seng Index has surged more than 33%, while the Hang Seng Tech Index has accumulated nearly a 39% increase. Looking at the overall performance from the beginning of the year, Chinese assets have been leading globally—Hong Kong stocks have outperformed to become the best-performing stock market worldwide.

According to Caixin, some market participants believe that the policy shift has reversed the previous bearish sentiments and short selling of Chinese stocks, leading to a significant underweighting of Hong Kong stocks by foreign inflows; on the other hand, Hong Kong stocks have fallen for four consecutive years from 2020 to 2023, with relatively cheaper valuations compared to other markets, prompting various funds to rush in driven by FOMO (Fear of Missing Out), fearing they might miss the opportunity.

It is worth noting that as the leading sector in the bull market, brokerage stocks have played a vanguard role in this current uptrend. The gains of China-affiliated brokerage stocks in Hong Kong's market have been remarkable, with extraordinary increases in the past five trading days. $SWHYHK (00218.HK)$ Cumulative increase exceeds 6 times, $CMSC (06099.HK)$ Risen nearly doubled, $CC SECURITIES (01375.HK)$Please use your Futubull account to access the feature.$GUOTAI JUNAN I (01788.HK)$ Both have cumulatively risen over 150%, $GUOLIAN SEC (01456.HK)$ Increased by more than 124%.

Market analysis believes that Hong Kong listed brokerage stocks have a stronger momentum than A-share stocks. On one hand, this is because A-share stocks are currently on a market break, while Hong Kong stocks are trading normally without price limits. On the other hand, it is also because A-shares and H-shares are heavily discounted, resulting in the same stocks having lower valuations in Hong Kong. In a situation of ample liquidity, the valuation gap will quickly narrow.

As of October 2nd, stocks with price spreads exceeding 50% in both A-shares and H-shares include $CICC (03908.HK)$Please use your Futubull account to access the feature.$SWHY (06806.HK)$Please use your Futubull account to access the feature.$CSC (06066.HK)$Please use your Futubull account to access the feature.$EB SECURITIES (06178.HK)$ According to documents filed with the U.S. Securities and Exchange Commission (SEC), some of the most prominent actions Third Point took in the second quarter, respectively, were to establish positions, shareholding of and more.

Therefore, in the case of abundant liquidity, the mentality of incremental funds entering the market to grab opportunities is evident, which will quickly narrow the price difference. This means that H-share brokerages may experience a rapid increase in stock prices in the short term, but it is also important to note that this could mean a quick saturation and the duration may be relatively short.

In addition, today's Hong Kong stocks have also shown sector rotation, with chip stocks and biotechnology stocks taking turns to rise. As of the close, $HG SEMI (06908.HK)$ the increase reached 285%. $SOLOMON SYSTECH (02878.HK)$ Surged over 70%, $SMIC (00981.HK)$and$HUA HONG SEMI (01347.HK)$ many individual stocks surged over 20%.

Within the biotechnology sector, $WUXI BIO (02269.HK)$ Rising more than 14%. $WUXI APPTEC (02359.HK)$Please use your Futubull account to access the feature.$AKESO (09926.HK)$ In terms of news, the iPhone 16 series is expected to be released in September 2024 and may be officially unveiled on September 10. Soochow Securities' research report also pointed out that with August entering the peak season for iPhone new component stocking, production and delivery are expected to accelerate, and the market is highly concerned about the launch of the iPhone 16 series in September.

According to reports, in the recent period, top foreign institutions have continued to focus on the A-share market, and also show strong interest in the semiconductor sector.

According to incomplete statistics, since the third quarter, well-known institutions including Temasek, Sequoia Capital, Blackrock, Goldman Sachs, Morgan Stanley, and others have frequently appeared in research lists of multiple semiconductor-listed companies.

Zhongtai International expects the semiconductor industry to have the opportunity for a re-rating. In the short term, market momentum may continue, especially for semiconductor stocks listed in Hong Kong. Bullish on the rise of Hong Kong semiconductor stocks driven by improved market sentiment and inflows of funds.

Considering the recent surge in the Hong Kong stock market since the start of this round of rally in real estate, financials sectors, and other heavyweight sectors, while the semiconductor sector has temporarily lacked attention from investors, the emergence of rotational trading is also worth paying attention to.

How will the future develop?

Currently, the most discussed topic in the market is whether this wave of market trends can continue.

The brokerage sector has always been a barometer of bull markets. Today, brokerage stocks once again surged across the board, indicating that the market still holds a generally optimistic outlook for the future performance of the Hong Kong stock market.

Yidong Zhang, Chief Global Strategy Analyst at CICC, stated that the logic of the Chinese stock market is undergoing a transformation. Whether it is A-shares or H-shares, the mid-term market trend will shift from a rebound logic to a reversal logic. The key to this change lies in the directional shift of China's macro policies.

In addition, from the recent trends of foreign investment, it can also be observed that the global markets are increasingly bullish on the future trend of China's assets.

Just this week, a total of 2.5 billion USD funds have flowed into the four largest ETFs listed in the United States that are related to the Chinese stock market, with KraneShares' KWEB experiencing the largest single-day inflow in history on Tuesday.

It is worth noting that, during the sharp rise in the Chinese stock market, a new ETF 'China Dragon' tracking the performance of large Chinese companies. $Roundhill China Dragons ETF (DRAG.US)$ debuted on the US stock market on October 3rd, also attracting market attention.

The components of this ETF currently include $TENCENT (00700.HK)$Please use your Futubull account to access the feature.$PDD Holdings (PDD.US)$Please use your Futubull account to access the feature.$BABA-W (09988.HK)$Please use your Futubull account to access the feature.$MEITUAN-W (03690.HK)$Please use your Futubull account to access the feature.$BYD COMPANY (01211.HK)$Please use your Futubull account to access the feature.$XIAOMI-W (01810.HK)$Please use your Futubull account to access the feature.$JD.com (JD.US)$Please use your Futubull account to access the feature.$Baidu (BIDU.US)$ and $NetEase (NTES.US)$.

DRAG aims to track an equally weighted basket of stocks composed of 5 to 10 of the largest and most innovative Chinese technology companies. DRAG has a fee of 0.59%, slightly lower when compared to most similar ETFs in terms of expenses.

In addition, there is data showing,Foreign investors have been long on Chinese assets in gold and silver.

According to the latest information disclosed by the Hong Kong Stock Exchange, JPMorgan bought on September 27th$CPIC (02601.HK)$H-shares worth 0.267 billion Hong Kong dollars, $BYD COMPANY (01211.HK)$ 1.791 billion Hong Kong dollars, $TSINGTAO BREW (00168.HK)$ 0.242 billion Hong Kong dollars, $HKEX (00388.HK)$ 1.813 billion Hong Kong dollars. In other words, within one day, JPMorgan spent over 4.1 billion Hong Kong dollars to sweep up Chinese assets.

As one of the largest financial service institutions in the United States, JPMorgan Chase & Co.'s increase or decrease in positions not only includes its proprietary trading, but also many operations as an intermediary institution for clients, which are generally mostly by foreign capital. It can be said to represent the trends of some foreign capital.

From the current market trends, foreign capital is still in the accumulation phase in the Hong Kong stock market. The performance after the market's volatile pullback may be more worthy of attention.

Tianfeng Securities stated that compared to global markets, Chinese assets still offer good value for money. Based on the expectation of gradual recovery and anticipation of improving fundamentals, Hong Kong stocks and Chinese concept stocks currently maintain attractive valuations with high risk-return ratio.

Fredrik Bjelland, the portfolio manager of the Skagen Kon-Tiki emerging markets fund, stated, "There is still a long way to go for the rebound, and China's valuation is very attractive. In addition, compared to history, global investors have very light positions."

Meanwhile, several foreign institutions are optimistic about the rising prospects of Chinese assets. Among them, Japan's largest brokerage Nomura Securities recently raised its year-end forecast for the MSCI China Index by 10%.

HSBC recently upgraded its rating on Chinese mainland stocks from neutral to overweight. HSBC strategist Alastair Pinder wrote in a report that due to still relatively low valuations and light investor positions, it is not too late to join this upward trend. HSBC's valuation model shows that, based on fundamentals, Chinese mainland stocks are still undervalued by 15%. The report also added that investors are currently underweight Chinese mainland stocks by 230 basis points relative to the benchmark, implying the potential for inflows of funds.

Editor/Somer