The "greedy" moment of Hong Kong stocks has arrived? Short-term divisions between institutions have increased

Economic Observer reporter Li Qin Is the "greedy" moment for Hong Kong stocks coming?

Since the fourth quarter, the Hong Kong stock market has maintained a volatile trend, and the Hang Seng Index has picked up relatively. According to Wind data, from the beginning of the fourth quarter to November 19, the Hang Seng Index closed up 1.93%, the Hang Seng State-Owned Enterprises Index edged up 2.80%, and the Hang Seng Technology Index closed up 5.84%.

With the gradual stabilization of overseas funds and southbound funds and the valuation in a relatively low historical quantile environment, the market view that "now is a good time to allocate Hong Kong stocks" has gradually increased, and many institutional people have thrown out views, believing that Hong Kong stocks have reached a time when they can already be greedy and can be configured.

However, there are also many people who take the opposite attitude, and the divergence points are mainly focused on the overall valuation of Hong Kong stocks, the macro environment and the perception of the leading sector.

Looking at the long term, many institutional people believe that there is no pessimism about the Hong Kong stock market in 2022, there are institutional opportunities worth seizing, and the long-term value will gradually become prominent.

Hong Kong stocks picked up

As of November 19, the Hang Seng Index closed at 25049.97 points, down 1.07%, the Hang Seng Technology Index closed at 6474.97, down 0.26%, and the Hang Seng State-Owned Enterprises Index closed at 8970.67, or 0.72%.

Since the fourth quarter, the trend of Hong Kong stocks has rebounded more obviously than in the previous three quarters, and the Hang Seng Index has shown certain signs of recovery. Also from the Wind data, the Hang Seng Index has closed up 1.93% since the fourth quarter, the Hang Seng State-owned Enterprises Index has closed up slightly by 2.80%, and the Hang Seng Technology Index has closed up 5.84%.

At the industry level, the raw material industry and energy industry, which had a better increase in the first three quarters, cooled down in the fourth quarter, while the technology sector and consumer sector that fell sharply in the first three quarters rebounded significantly in the fourth quarter.

Tracing the reasons for the recovery can be explained from multiple levels such as global macroeconomic trends, real estate debt sentiment, Internet regulatory policies, and fundamentals.

From the perspective of overseas economic trends, the heads of the ICBC Credit Suisse Fund Equity Investment Capacity Center I and Vii Center said that due to the US inflation data continuing to exceed market expectations, the US reduction expectations gradually landed and the interest rate hike expectations were expected to advance, resulting in large fluctuations in the yields of long and short US Treasuries, which caused certain fluctuations in the pricing efficiency of stocks, especially long-term growth stock assets. However, considering that the taper is expected to be managed more fully and the valuation of some core assets of Hong Kong stocks is already at a low level, the impact of overseas liquidity on Hong Kong stocks will be relatively limited overall.

Secondly, Shan Wen believes that after the outbreak of the global epidemic, China's economy has been first-in,000, resulting in a misalignment of the Sino-US economic recovery cycle, which has also brought pressure to Hong Kong stocks to a certain extent. However, with the slowdown in the marginal growth of the US economy, the relatively strong effect of US assets is gradually weakening, and the value of cost-effective high-quality asset allocation in emerging markets has gradually become prominent.

From the perspective of real estate, the potential default risk of China's real estate US dollar bonds has greatly affected the risk appetite of the Hong Kong stock market. The risk exposure of some real estate companies has caused some overseas investors to sell real estate and even the entire Hong Kong stock assets, but looking forward to the future, Shan Wen believes that some policies of "maintaining the healthy and stable development of the real estate industry" will be introduced one after another to partially alleviate the concerns caused by the real estate debt problem.

In addition, Feng Fengdi of the Macro Strategy Department of Bosera Fund and Li Nan, a researcher at Jin Zhang under Geshang, both mentioned that the slowdown in the upward trend of commodity prices and the improvement of the operating environment of Internet companies, and the release of regulatory pressure have become important factors affecting the performance of the Hong Kong stock market.

Li Nan also mentioned that the easing of Sino-US relations and the recovery of market risk appetite have also had a certain impact on the trend of the Hong Kong stock market.

Liquidity and valuation

What is the liquidity and valuation of Hong Kong stocks?

From the perspective of liquidity, fund managers generally believe that from the overall point of view, the liquidity of the Hong Kong stock market is in a relatively stable state.

According to the analysis of the single article, China's macro level is still dominated by stable growth and the currency is moderately loose, which means that domestic liquidity will not be marginally tightened, and the allocation of Hong Kong stock funds to the south will remain relatively abundant. At the same time, for most of this year, due to the first-in-first-out Chinese economy and the misalignment of the US economic cycle, the willingness to allocate overseas capital inflows to Hong Kong stocks is limited. However, judging from the fourth quarter data, although overseas active funds have not been too strong to increase the willingness to allocate Hong Kong stocks, overseas ETFs have already had a clear net inflow.

Feng Fengdi also mentioned that the rapid outflow of funds driven by policy shocks has passed, and recently overseas funds and southbound funds have shown signs of stabilization.

Shan Wen stressed that although the expectation of interest rate hikes may affect the willingness of funds to flow into Hong Kong stocks, with the marginal slowdown in the US economic growth rate, it is relatively optimistic about overseas funds flowing into Hong Kong stocks.

However, Li Nan believes that the current global liquidity is in a marginal tightening situation. The Fed will scale back on bond purchases in November, not a few central banks will start announcing interest rate hikes, and China has no intention of releasing water to stimulate even in the context of the economic downturn, so the liquidity situation can be considered to be tightening.

When it comes to valuation, in Feng Fengdi's view, the valuation of Hong Kong stocks is in a lower historical quantile, and the allocation is more cost-effective. Among them, the Hang Seng Index, Hang Seng State-Owned Enterprises and Hang Seng Technology Index PE (TTM) are near or below the historical quantile of 30%, and the valuation advantage is obvious.

Li Yaozhu, head of the international business department of GF Fund, said that Hong Kong stocks have been affected by the external environment this year, and the valuation has dropped sharply; at present, whether it is a horizontal comparison with other major equity markets or comparing itself, the valuation quantile is in a relatively low position.

Li Nan extended the time to a decade, arguing that Hong Kong stocks are not as cheap as PE valuations seem. In terms of historical quantiles, the Hang Seng Index is at a nearly 70% quantile over the past decade. However, the valuation situation in the industry is more seriously differentiated, with more than half of the industry's valuation below 30% of the historical quantile, while some industries are above 80%.

In the single article, the valuation of the overall overseas Chinese stocks is currently at a historically low level, but a clearer understanding of the valuation of Hong Kong stocks can be obtained by splitting the valuation level of the new and old economies. At present, the OLD ECONOMY SECTOR OF MSCIChinA is only 6.2 times pee in the previous 12 months, which is at an absolute historical low; while the dynamic PE of the Hang Seng Technology Index, which represents the new economy, is 33.4 times, which is not significantly undervalued compared to the ChiNext board and NASDAQ, but from the perspective of PEG, the PEG of the Hang Seng Technology Index is lower than 1, compared with the ChiNext and Nasdaq indexes.

Should it be "greedy"?

"The valuation of the Hong Kong stock market has a certain comparative advantage, and the old economy is at the bottom of the historical valuation, but this does not mean that we can judge 'Hong Kong stocks have reached a time when they can be greedy' just by virtue of the low valuation level." Emphasised in a single text.

He said that considering multiple factors such as comprehensive profit cycle judgment, domestic and foreign liquidity, Sino-US relations, valuation, and fundamentals, Hong Kong stocks are still facing challenges in the short term, but the marginal improvement trend is gradually clear, and the long-term allocation value is gradually highlighted. In the short term, the fundamental pressure on some core assets of Hong Kong stocks is still relatively large, on the one hand, the pressure comes from the slowdown in macroeconomic growth, on the other hand, the company also needs to adapt to new regulatory rules, fulfill more social responsibilities, increase investment and so on. At both the macro and micro levels, the inflection point of fundamentals may occur in the second half of next year.

In the medium term, Hong Kong stocks in the new economy currently have a good valuation and value for money, as well as scarcity. At present, we have seen a relatively clear improvement in policy expectations, and at the same time, superimposed on the recovery prospects of the fundamentals in the second half of next year, the investment value of Hong Kong stocks will gradually appear. At the same time, the easing of Sino-US relations and the marginal easing of policies will be conducive to the marginal allocation of Hong Kong stocks. In the long run, it is also optimistic about the general trend of capital allocation in Hong Kong stocks.

Li Yaozhu is also optimistic about the allocation value of Hong Kong stocks in the future, he believes that although the domestic economic growth rate may slow down next year, but the space for easing policies is larger, superimposed on the vitality of middle and downstream enterprises after the decline in upstream raw material prices, it is expected that the allocation value of Hong Kong stocks will increase significantly next year.

Feng Fengdi is not pessimistic about the overall attitude of the Hong Kong stock market, but believes that structural opportunities are worth seizing. Specifically, the main reason for the suppression of Hong Kong stocks this year is the impact of industry policies and debt defaults on real estate, banks and other weighted sectors. In terms of policy, the digital economy has established the tone of high-quality and standardized development, the detailed rules have been released one after another, and short-term disturbances are still in place; in terms of real estate, the marginal relaxation of financing constraints in the recent past, but the long-term regulation and control mechanism of real estate remains unchanged, and the policy is more to rely on but not to take, with the intention of preventing risks, and there may be valuation repair under the improvement of risk appetite, lack of continuity. Overall, in the context of the economic downturn, the Hong Kong stock wide-based index may continue to fluctuate next year, but it is not pessimistic and grasps structural opportunities.

Li Nan also believes that even if there is an opportunity for Hong Kong stocks, it will be structural, and the probability is related to the prosperity of the industry. Leaving aside the fact that the overall valuation of Hong Kong stocks is not very cheap, the current macro environment does not support the better performance of Hong Kong stocks. From a macroeconomic point of view, China's economic growth rate next year is likely to slow down in a more balanced way. At the same time, the monetary policy of central banks around the world is in a tightening trend.

Pang Min, chief economist and chief strategist of Huaxing Securities, reminded that the Hong Kong stock market is now a hot spot conversion frequently, there is no significant leading hot spot, in general, it is still the case of the stock game, investors still have divergent views on value stocks and cyclical stocks, waiting for the overall improvement of the policy, capital and external environment, the upward trend will be confirmed. Considering the composition of investors in the Hong Kong stock market, if external uncertainties can be eliminated, the risk appetite of the market can further rise.