Picture Worm Creative/Courtesy of Picture Worm
Securities Times reporter An Zhongwen
April 2024, when the darkness and the dawn appear together, will become a historic and unforgettable moment for public funds to go south.
In mid-April, Hong Kong stocks suffered another heavy setback, with many large-cap stocks falling into mid-cap stocks, growth stocks falling into value stocks, and even the market value of some companies' shares falling below the cash on the company's books. But in late April, the sentiment of mutual fund managers to go long suddenly rose and started to rush to buy. Many of the Hong Kong stock fund heavy stocks that hit a record low in mid-April were backhanded by the fund in late April, and many stocks experienced desperate new lows in the same month, and then doubled their stock prices in the following 5 to 10 trading days.
Hong Kong stocks in April "bitter first and then sweet"
Public funds are actively going south
In the past two years, in the context of the lack of money-making effect, Hong Kong stocks have been complained by many fund managers that it is "too difficult", some fund managers have lost more than 50% in 3 months after the Hong Kong stocks have a heavy position in artificial intelligence (AI) concept stocks, and some fund managers have "copied the bottom" after the valuation of 10 times the consumer leader, but found that the valuation continued to fall to 2 times, which is very bitter. But with the sudden continuous rise in Hong Kong stocks, the once "bitter" has finally been exchanged for "sweet"!
For example, SenseTime, a leading AI stock that was significantly reduced by public funds in the fourth quarter of last year, only had a share price of HK$0.58 per share after the close of trading on April 19, hitting a record low since its IPO in 2021. But just one weekend later, SenseTime's share price quickly soared from HK$0.58 to HK$1.19 in five trading days, a cumulative increase of more than 105%.
In fact, many Hong Kong thematic fund managers have also found that many heavy stocks hit their lowest prices in April, but they also rebounded suddenly and sharply from April. Prior to this, many Hong Kong stock companies showed weakness in every rebound in the downward trend of stock prices, and the single-day increase was often not large, but this rebound was very rapid and amazing. For example, on April 22, Tencent Holdings, a publicly offered huddle stock, rose 5.46%, the largest one-day increase in nearly 10 months.
If calculated by weekly gains, it can further highlight the strong performance of the heavy stocks of Hong Kong stock funds at this turning point. For example, Nai Xue's tea, which is held by a number of consumer-themed funds, rose about 19% in a single week last week, the largest weekly increase in 12 months. The last time there was such a strong performance was in the last week of March 2023, when it rose by 21% in a single week. However, even after a short-term surge, the current share price of Nayuki's tea is still far lower than before.
Wind data also shows that in the last week of April (April 22 to April 26), the cumulative turnover of southbound funds was about HK $207.592 billion, maintaining a net inflow trend for the 11th consecutive week, with a net inflow of HK $10.290 billion that week and a net inflow of more than HK $200 billion year-to-date.
From defense to offense
The sentiment of public funds is high
The rise of Hong Kong stocks in this round has the characteristics of market risk appetite shifting from conservative to offensive.
The market capitalization is much lower than the cash on hand, the large market becomes mid-cap, the mid-cap becomes small-cap and even micro-cap stocks, which is the emotional support for many fund managers to go long in April, and this phenomenon also provides room for Hong Kong stocks to counterattack. FOR EXAMPLE, KEEP, WHOSE MARKET VALUE FELL FROM HK$22 BILLION TO HK$1.8 BILLION IN EIGHT MONTHS, SUDDENLY BECAME THE TARGET OF FUND MANAGERS' RUSH TO BUY IN MID-APRIL, WITH THE SHARE PRICE RISING BY 99% IN JUST ONE MONTH, AND THE MARKET VALUE ALSO RECOVERED TO HK$4.2 billion.
For fund managers, the short-term change from a mid-cap stock to a micro-cap stock means that once the pendulum swings in the opposite direction, it will inevitably usher in a big opportunity. The total cash on hand of KEEP reached HK$1.944 billion, while its market value was only HK$1.8 billion at its lowest.
In addition, the market value of Yidu Technology, a medical AI model company covered by fund managers, has fallen from HK$60 billion at the beginning of 2021 to HK$3.5 billion on April 19 this year, a medical artificial intelligence company whose stock has fallen by as much as 94%, is also a typical example of the market value falling below the company's total cash amount. According to Yidu Technology's 2023 financial report, the company's total cash is HK $4.285 billion, and its market value is only HK $3.5 billion on April 19 this year.
It is precisely because public fund managers have noticed that the market value of many Hong Kong stock companies is lower than the amount of cash held by the company, so the "faith" of fund managers to buy Hong Kong stocks quickly "increased" in the decline of Hong Kong stocks in April. Taking Yidu Technology as an example, when the company's stock price fell to a lower than the total cash amount, it was backhanded long by funds only a few trading days later, and rose sharply for 5 consecutive trading days in the last week of April, with a single-week increase of 22.78%, setting a new high in a single week since November 2022.
The fundamentals of Hong Kong stocks are improving
Fund managers are becoming more optimistic
"The rapid rise of Hong Kong stocks this time shows an independent market that is different from the trend of A-shares, mainly because the recent net inflow of southbound funds has accelerated. Feng Chencheng, manager of Huabao Hong Kong Stock Connect Internet Fund, said that southbound funds have been net inflows for 11 consecutive weeks since the Spring Festival, and 29 of the last 30 days have shown net inflows, with a cumulative net inflow of more than 200 billion Hong Kong dollars since the beginning of the year. On the policy front, the SFC has recently issued five co-operation measures with Hong Kong's capital market, aiming to further expand the mutual access between the two markets, promote the coordinated development of the capital markets of the two places, facilitate more enterprises with long-term development and return potential to list in Hong Kong, attract more international capital to Hong Kong, and strengthen and enhance Hong Kong's status as an international financial centre.
Feng Chencheng believes that from a fundamental point of view, there are two obvious changes in the Internet sector after the disclosure of the annual report: first, the cost reduction and efficiency increase from 2022 have brought about a continuous increase in the company's net profit margin, and second, the competition pattern in the Internet industry has undergone marginal changes. Internet giants have focused on their core businesses, shrinking loss-making or unprofitable businesses, empowering limited resources to their core businesses and deepening their long-term competitiveness. Judging from the results, although the revenue growth rate of Internet companies has slowed down, the more focused competitive strategy and the focus on relatively more profitable businesses have led to the sustainable profit growth of the sector. The change in the competitive strategy of Internet companies has led to the improvement of the competitive landscape in some sub-sectors, which in turn has improved the situation that the industry has been under pressure on profit margins due to involution.
In addition, the above-mentioned fund managers stressed that the cash flow and profits of most Hong Kong-listed companies will continue to improve and grow in 2024, hoarding capital for long-term innovation and change. Most companies have increased their emphasis on shareholder returns, such as Tencent Holdings' buyback scale doubling compared with last year, and the buyback is superimposed with dividends, and the overall shareholder return rate exceeds 5%. In previous years, the cash flow of the Internet was mostly used for foreign investment, and this year, the business opportunities of the giants are not large, and when it is found that the objects that can be invested are not as good as the certainty and growth ability of their main business, it can be reasonably speculated that the proportion of follow-up Internet companies to increase the proportion of repurchase is a possible direction, at least the giants will be more active than in the past.
Yang Delong, chief economist of Qianhai Open Source Fund, also said that the sharp rise in Hong Kong stocks was mainly driven by the recent southbound capital and foreign capital inflows, because in the global stock market, the stock markets in Europe, the United States and Japan are at historical highs, and the valuation of Hong Kong stocks in the global capital market is low, attracting foreign capital inflows. 2024 is a year full of opportunities, A-shares and Hong Kong stocks will jointly rebound, and even do not rule out the slow bull market, this round of rise will not be as fierce as the bull market in 2015, nor will there be a large amount of leveraged funds, but out of a relatively healthy and long-term slow bull market, so that investors can have time to pick out good companies from the market for allocation. At present, many high-quality companies have fallen out of value, and the stock price is only equivalent to 20%-40% of the historical high.
Huang Liang, manager of the Southern China Emerging Economy Fund, who increased his position in Hong Kong stocks during the first quarter of this year, significantly increased his top 10 core heavy stocks with highly elastic and aggressive Hong Kong AI artificial intelligence targets and consumer stocks abandoned by the market, highlighting the confidence of public fund managers in China's economic recovery and the recovery of Hong Kong stocks. Previously, the Hong Kong stock consumption track became the hardest hit area of the fund's decline, and the highly elastic artificial intelligence stocks dragged down the net value of the Hong Kong stock theme fund. This time, some fund managers have increased their positions in this sensitive sector again, which also shows a change in strategy.
"Compared with the beginning of 2024, we are currently more optimistic about the Hong Kong stock market, TMT and the consumer sector. Huang Liang also explained the reason for his major strategic adjustment, he expects that AI technology will be gradually applied to various vertical applications, and breakthroughs will be made in 2024 in the fields of graphics, video, autonomous driving, recommendation algorithms, education, and databases. In addition, although the products of the headset MR track will not sell very well this year and next year, it will also bring a new round of product innovation.
In addition, Huang Liang emphasized that when growth stocks fall into value stocks, this in itself is a kind of bottoming logic. He believes that at present, many growth stocks in the Hong Kong stock market have begun to have strong value attributes, especially better growth and more asset-light, and the attractiveness of new "value stocks" will gradually increase. In addition, the outflow of foreign capital in the past three years has been a major factor affecting the decline of the Hong Kong stock market, but sufficient buybacks are expected to offset the impact of foreign capital outflow, becoming one of the important winners and losers of the reversal of Hong Kong stocks.