According to the Wise Finance APP, Guotai Junan International released a research report stating that the recent strength in the Hong Kong stock market is mainly driven by the enhanced expectations of domestic policies combined with an expansion of expectations for overseas interest rate cuts within the year. However, later the expectations for overseas interest rate cuts cooled down, leading to a partial retracement of the stock market gains. The movement of the Renminbi exchange rate is closely related to the Hong Kong stock market trend, with similar driving factors. Continuous introduction of domestic policies, a confirmed overseas interest rate reduction trend, and a mainly positive future trend for the Hong Kong stock market are indicated. Stocks in interest rate-sensitive industries have greater price elasticity, including internet leaders, pharmaceuticals, and consumer sectors. Additionally, industries with high dividends (utilities, banks, and telecommunication operators) have higher value in terms of industry allocation.

Since mid-September, the Hong Kong stock market has risen rapidly, retracing some of the gains after the National Day holiday, with a similar trend in the Renminbi exchange rate.

The Hang Seng Index began to rise from September 11th, touching a temporary high and then retracing some of the gains to 18.6%. At the same time, the Renminbi exchange rate showed a similar trend to the Hang Seng Index, as the offshore Renminbi exchange rate rose and temporarily exceeded the 7.0 level, currently returning to the level before the increase.

The main reason for the recent strength in the Hong Kong stock market is the enhanced expectations of domestic policies combined with an expanded forecast of overseas interest rate cuts within the year. However, the subsequent cooling of the expectations for overseas interest rate cuts led to a retracement of some of the stock market gains.

Before the National Day, various financial departments in China unexpectedly implemented a combination of policies, and the Politburo meeting released bullish signals, greatly benefiting the Hong Kong stock market. In addition, the U.S. Federal Reserve unexpectedly cut interest rates by 50 basis points at the September meeting, improving the expectations for the denominator end of the Hong Kong stock market, leading to a net inflow of some overseas funds into the Hong Kong stock market. At the end of September, U.S. economic data exceeded market expectations; after the holidays, U.S. employment data and core inflation rates both exceeded expectations. In response, the expected magnitude of the interest rate cut by the Federal Reserve in 2024 was revised down, cooling the market's enthusiasm as expectations tightened at the denominator end of the Hong Kong stock market.

The movement of the Renminbi exchange rate is closely correlated with the Hong Kong stock market trend, driven by similar factors.

After the Renminbi exchange rate reached a temporary high, with recent better-than-expected US economic data, the strong dollar caused the offshore Renminbi exchange rate to relatively decline, showing a similar performance as the Hong Kong stock market. Taking a longer-term view, a significant proportion of Chinese companies are listed in the Hong Kong stock market, and the trends of the Hong Kong stock market and Renminbi both reflect expectations for the Chinese economy.

Investment strategy: With continuous domestic policy releases and a confirmed trend of overseas interest rate cuts, the future trend of the Hong Kong stock market is expected to be upward.

Looking at the Hong Kong stock market from the perspective of the Renminbi exchange rate trend, both the Hong Kong stock market and Renminbi rose before the holiday, mainly driven by the continuous introduction of domestic economic support policies, improving domestic economic prospects, and the rising expectations of overseas interest rate cuts. However, after the holiday, the Renminbi fell against the US dollar mainly due to the stronger dollar resulting from better-than-expected US economic performance, rather than a downward revision of China's domestic economic outlook implied by the Renminbi itself; the Renminbi exchange rate against other currencies has even slightly increased recently.

Therefore, the short-term return of the Renminbi against the US dollar to the September low does not mean that the Hang Seng Index will also fall back to the level of early September. Looking ahead, the future trend of the Hong Kong stock market is expected to be upward, with greater price elasticity for interest rate-sensitive industries, including internet leaders, pharmaceuticals, and consumer goods; in addition, high-dividend (utilities, banks, telecommunications operators) industries have relatively high value in investment allocations.