Source: Broker China
Author: Shi Qian

On Friday, against the backdrop of a sharp decline in the periphery, the Hong Kong stock market once had a strong performance in early trading. The Hang Seng Index opened up 0.38%, while the Hang Seng Technology Index opened up 0.11%. Afterwards, although there was a wave of decline, the Hang Seng Index quickly turned up. However, the market still underestimated the strength of bears. The Hang Seng Index then fell again, and the decline widened to around 1%, but the overall trend was far stronger than the Japanese stock market, which is a strong pattern in the Asia-Pacific stock market.

Analysts believe that currently, there are four major factors influencing the Hong Kong market:

First, Hong Kong's economy is showing signs of warming up. After seasonal adjustments, the S&P Global Hong Kong Special Administrative Region Purchasing Managers' Index (PMI) rose from 49.7 in February to 50.9, returning to an expansionary level for the first time this year;

Second, the valuation of Hong Kong stocks is in the lowest position among the world's important stock markets, and in recent years, the capital has been paid off ahead of schedule;

Third, one of the main reasons for the recent slump in the global market is the resurgence of inflation expectations. However, both the price index in mainland China and the inflation rate in Hong Kong are at a moderate level;

Fourth, the performance of the Japanese market. Recently, the Nikkei Index showed a double-headed performance, and the Bank of Japan continued to release signs of turning into an eagle. The sharp drop in Japanese stocks will affect sentiment on the one hand, but on the other hand, it may also cause capital to flow back to Chinese assets.

There are big benefits in Hong Kong

This morning, Hong Kong's economy showed great benefits. After seasonal adjustments, the S&P Global Hong Kong Special Administrative Region Purchasing Managers' Index (PMI) rose to 50.9 from 49.7 in February. It returned to the level of expansion for the first time this year, reflecting the business environment reversing the decline of the previous two months.

During this period, new orders increased for the first time since this year. Interviewees revealed that even though the magnitude was small, it was the second time in nine months that there was an increase, reflecting an improvement in the financial situation. Looking at data from different industries, the construction industry's order growth is the most prominent. However, the volume of new business received by enterprises from overseas and the mainland continued to shrink, and the decline widened at the end of the first quarter. According to survey data, the decline in tourist demand, combined with a slowdown in the external environment, are both factors affecting business from overseas.

Furthermore, the company's overall output in March was only slightly lower than in February, indicating an increase in new orders and slowing down the decline in business activity in March. Supported by increased orders, Hong Kong private enterprises opened up more jobs. The employment increase in March jumped to the highest level in nearly a year, and was able to clear the backlog for six consecutive months. Although the company slightly reduced the purchase of inputs in March, the procurement inventory increased markedly. Although new orders resumed growth, the overall business environment in March was still pessimistic. Businesses are generally worried that the economic downturn and increased competition will further impact sales in the coming year.

Jingyi Pan, deputy director of S&P Global Markets Financial Intelligence and Economics Research Division, said that the March PMI data showed positive signs, reflecting another improvement in Hong Kong's business environment. The five individual PMI indices all sent signals of improvement, supporting the PMI index to return to the expansion range; among them, it was upgraded for the second time in nine months with new orders. This turning point is particularly noteworthy. The increase in overall input prices fell back to its lowest level in three years, thus reducing the cost pressure on private enterprises; although output price inflation is heating up on a monthly basis, it is still moderate overall. However, the overall pessimism deepened month by month, and the industry continued to blow down the wind, indicating that the company still has reservations about the continued growth of production.

Notably, mainland China's manufacturing PMI for March was 50.8, up 1.7 points from the previous value of 49.1, far higher than the expected 50.1. Coupled with the leading indicators of the Hong Kong economy, the market is shifting in the direction of recovery.

The stage of a sudden change in the situation has arrived

Recently, the global equity market has once again fallen into a quagmire. There are actually three main ones:

First, in the context of new technology, the rise of artificial intelligence has strengthened demand expectations for copper. This was followed by a sharp rise in copper futures, which triggered a major wave of bright markets, and inflation expectations have revived as a result;

Second, the situation in the Middle East has changed dramatically. Israel has “ignited fire” everywhere, spawning expectations of a sharp rise in international oil prices, while international oil prices have strengthened expectations of further inflation, causing the Federal Reserve to actually be set on fire;

Third, changes in Japan's lifestyle are becoming a new variable. Currently, although the exchange rate of yen has not changed much, if inflation rises and Japan actually raises interest rates, it may be difficult to avoid asset price fluctuations due to changes in global liquidity before or after that.

However, China, as a major producer, has some opportunities at this time. First, our asset prices are low, and the risk is not great; secondly, our inflation level is low and is at a moderate and manageable stage; third, high-quality and inexpensive Chinese products are a good choice to calm inflation.

Against this background, the international situation has also recently undergone significant changes. According to the Ministry of Finance website on the 3rd, as agreed between China and the US, US Treasury Secretary Janet Yellen will visit China from April 4 to 9. Afterwards, Brinken will also visit China. According to Global News quoting foreign media, German Chancellor Scholz will also visit China later this month. It is expected that executives from many German companies, including BMW and Mercedes-Benz, will go with him. At this time, China's position in the world economy was once again evident. Behind this is not only a huge market, but also the most complete industrial chain layout. In fact, whether it's a US debt problem, a global inflation problem, or an extreme geopolitical issue, it will be much easier to resolve with China's participation.

Editor/Jeffy