According to the Futubull APP, China securities co.,ltd. released a research report stating that the Hong Kong stock market has continued to rise recently, with the core reason being the improvement in overseas liquidity. After analyzing the capital environment of this round of market, Chen Guo from China securities co.,ltd. expressed that the current Hong Kong stock market does not have an advantage in the global allocation of overseas liquidity and cannot reproduce the rise in April. Looking ahead, he believes that current funds can gradually layout the return of foreign investment after the U.S. presidential election at the end of the year. The main line for the allocation of Hong Kong stocks in the future remains the dividend sector. Meanwhile, the continuous large-scale dividend repurchase of internet leading companies provides a new layout direction.

Main viewpoints of Zhongxin Jiandao are as follows:

The three macro indicators affecting the Hong Kong stock market are domestic fundamentals, overseas liquidity, and the distribution of overseas liquidity. As an offshore market, the Hong Kong market resonates with the global liquidity level at the denominator end. In recent years, mainland companies have gradually become the main body of listings in Hong Kong, and their relationship with domestic fundamentals is relatively close. Since the second half of 2023, the competition for liquidity in the Asia-Pacific market has intensified, and the allocation of funds also has a significant impact on the denominator end. In addition, overseas risk factors (such as war, debt crisis, energy crisis, etc.) need to be considered separately.

What are the driving factors for the recent rise in the Hong Kong stock market?

While the market's focus has shifted from carry trade reversal to interest rate cut trade, the recent substantial improvement in overseas liquidity has become the main force driving the rise of the Hong Kong stock market, with the expectation of a continuous increase in the rate cut by the Federal Reserve and the temporary suspension of interest rate hikes by the Bank of Japan.

Will the strong market trend in April be repeated in this round?

The allocation ratio of overseas liquidity has a significant impact on Hong Kong stocks. In the recovery of overseas liquidity in April, the proportion of liquidity allocated to Hong Kong stocks far exceeds that of other markets. In contrast, Hong Kong stocks are at a disadvantage in the global liquidity competition and it is difficult to form a strong market trend.

What is the current allocation logic?

China Securities Co., Ltd. stated that the next wave of market trends in Hong Kong stocks worth looking forward to is likely to occur after the US presidential election at the end of the year and long-term funds can gradually start to deploy. Currently, high dividend AH stocks still have a certain safety margin and high cost performance. Inflows of southbound funds continue to enhance the pricing power of southbound funds and Tencent Holdings (00700) is particularly bullish in the near term. Major internet companies listed in Hong Kong stocks are favored by the wave of dividend repurchases, providing new focus.

Risk warning

(1) Geopolitical risks. If Sino-US relations are poorly managed, it may affect foreign investment's preference for Hong Kong stocks. At the same time, geopolitical hotspots such as the Russia-Ukraine conflict and the Middle East issue may face worsening risks, which could have a detrimental impact on the market if a crisis occurs.

(2) Unexpectedly tight overseas Federal Reserve. If the U.S. economy continues to show resilience and strong performance in economic data such as labor market and retail, the risk of U.S. recession may be underestimated. At the same time, inflation risks may rebound and the Federal Reserve's tightening against inflation continues, global liquidity may be looser than expected and Hong Kong stock liquidity will also be under pressure.

(3) The implementation of domestic economic recovery or steady growth policies falls short of expectations. If subsequent domestic real estate sales, investment, and other data fail to recover, long-accumulated risks of local government debt repayment will face escalation, the economic recovery will be ultimately proven false, and the overall market trend will be under pressure, with overly optimistic pricing expectations facing corrections.