Interface News Reporter | Liu Chenguang
"The Hang Seng Index, which was bought at a high level before, is now about to return to its original value, and it would be better if it could rise a little more!" An individual investor who has been speculating in Hong Kong stocks for three years looked at the market and said excitedly.
"There has always been an allocation of Hong Kong stocks, and in this market, the technology stocks I bought have risen a lot, but fortunately I didn't clear my position before." A person who has been investing in Hong Kong stocks for a long time said.
After a long period of silence, Hong Kong stocks have finally become "hot" recently.
On May 16, the Hang Seng Index rose 1.59% to close at 19,376.53 points, and the Hang Seng Tech Index rose 0.76% to close at 4,072.15 points. Recently, Hong Kong stocks have risen sharply, and the Hang Seng Index has risen for ten consecutive days.
The hot secondary market has also driven the IPO market of Hong Kong stocks to a certain extent. Since March, the number of companies submitting statements to the Hong Kong Stock Exchange has increased to a certain extent. Recently, the new chief executive of the Hong Kong Stock Exchange, Chen Yiting, said that it is expected that large-scale IPOs will reappear in the market, and there are currently 100 companies queuing up to be listed on the Hong Kong Stock Exchange.
So, why have Hong Kong stocks risen recently? What funds are being bought behind it? What kind of preference do these funds have?
Why do Hong Kong stocks continue to recover?
Entering late April, Hong Kong stocks rose significantly. Choice data shows that from April 22 to May 16, the Hang Seng Index has risen by 19.43%, and the Hang Seng Technology Index has risen by 24.22%.
Among them, the Hang Seng Index has been rising for 10 consecutive trading days, and has been in the red from April 22 to May 6. On April 26, the Hang Seng Index had risen more than 20% from its bottom and entered a technical bull market.
What are the reasons behind the continuous rise in Hong Kong stocks?
Chen Gang, co-director of the research department of Eddid Securities Futures, said that the sharp rise in Hong Kong stocks is mainly based on several aspects: first, the sluggish performance from 2019 to 2023 has made the market valuation very low, and now it is a normal valuation return; Second, the continuous improvement of real estate policies has ushered in a positive policy market for real estate and its industrial chain; Third, overseas funds continued to flow into the Hong Kong stock market. With the increase in the "uncertainty" of the Federal Reserve's interest rate cut this year, coupled with the rebound of the Hong Kong stock market, the allocation of overseas funds to the Hong Kong stock market has returned.
"In addition, since the first quarter of last year, the high dividend market has continued to this day, coupled with the market's expectation of dividend tax reduction for Hong Kong stocks, the strong performance of high-dividend and blue-chip stocks in traditional industries has been a catalyst for the strength of the Hong Kong stock market." Chen Gang said.
Futu's research team told Jiemian News that the Hang Seng Index and the Hang Seng Technology Index of Hong Kong stocks continued to rise, mainly benefiting from the continuous recovery of economic fundamentals and the continuous repair of Hong Kong stock valuations.
"In the short term, there is news that the dividend tax payable by mainland individual investors investing in Hong Kong stocks may be considered for reduction, and if confirmed, it will continue to drive the valuation of Hong Kong stocks to increase, especially for the high-dividend sector. In the medium to long term, the advantage of the global valuation depression of Hong Kong stocks and the trend of improving economic fundamentals are still valid, and it is expected to continue to boost the Hong Kong stock market in the future. The Futu team analyzed.
Yan Zhaojun, a strategic analyst at Zhongtai International, told Jiemian News that the recent favorable policies can encourage market sentiment, and the downward pressure on Hong Kong stock earnings forecasts will slow down, which will help Hong Kong stocks rise. In addition, the Federal Reserve's May interest rate meeting ruled out the possibility of raising interest rates, but maintaining high interest rates for a longer period of time increases the probability of subsequent economic risks, and in the medium term, the 10-year U.S. Treasury yield may return to a downward trend after shock, which is conducive to the release of liquidity pressure on Hong Kong stocks.
Yan Zhaojun said that the risk premium of the Hang Seng Index has been lower than the rolling two-year average of one standard deviation, and the sustainability of further upward movement of Hong Kong stocks still needs to be supported by the continuous strengthening of China's economic fundamentals, the upward revision of corporate earnings expectations and the no longer rising overseas risk-free interest rates.
"In the current situation of resonance on the capital, policy and emotional sides, the situation of short-term support and upward elasticity of Hong Kong stocks is forming. Driven by capital sentiment, the Hang Seng Index still has a potential 4.6% rise in the near term if the risk premium falls back to 6% and the 10-year Treasury yield is 4.4%. The main trading range of the Hang Seng Index is expected to move up to 17,150 to 19,200 in May. Yan Zhaojun said that if the risk premium of the Hang Seng Index returns to the level of August last year, in the most optimistic scenario, the Hang Seng Index still has a potential rise of 4.6% in the short term (19,300 points).
Zhang Yidong, global chief strategy analyst of Industrial Securities, believes that the market will continue in May, and from the perspective of short ratio, the rebound driven by short cover is far from over. However, the freezing of three feet is not a day's cold, and under the suppression of bear market thinking in the past few years, the improvement of risk appetite of Hong Kong stocks will not be achieved overnight. If the sentiment of Hong Kong stocks heats up rapidly, for example, the short ratio returns to about 10%, or there are more big Vs shouting about the bull market of Hong Kong stocks, then the inertial thinking of bearish Hong Kong stocks will re-emerge and trigger short-term shocks, especially in the late second quarter to the beginning of the third quarter.
Chen Gang told Jiemian News that at present, there is still room for allocation in the Hong Kong stock market, first, the index has performed strongly since February, but the valuation is still at a relatively low level; Second, inflation in the mainland has rebounded, and consumption recovery continues to show positive signals; Third, the export data has also improved significantly. Valuations and fundamentals still have room. The recovery of the secondary market of Hong Kong stocks will help the primary market to speed up.
Who's buying?
Behind the continuous rise of Hong Kong stocks is the continuous inflow of funds.
Wind data statistics show that since April, as of the close of May 16, southbound funds have only been net sellers for two days, and the rest of the time are net buys, with a cumulative net purchase of more than HK $100 billion.
"From the perspective of capital flow observation, foreign capital began to flow into Hong Kong stocks in mid-to-late April, especially in the technology and Internet sector of Hong Kong stocks with low valuation and high performance elasticity. Since the news of the relaxation of the mainland's real estate policy and the reduction of the dividend tax of Hong Kong Stock Connect, the scale of southbound capital inflow has increased significantly, mainly flowing to high-dividend sectors such as banks, electricity and telecommunications, as well as real estate-related sectors. The Futu research team said.
However, a senior Hong Kong stock institutional person told Jiemian News that the scale of southbound capital flow is acceptable, but I don't know how long it can last, and the upward momentum is still there, but it is weakening.
Cai Rui of BOCOM International believes that the market consensus for the rebound since April 2024 is that Hong Kong stocks have rebounded recently, and the largest buyers on the margin are foreign capital, but limited by the availability of specific data, it is difficult to quantitatively analyze whether foreign capital is increasing its holdings and the specific direction of increasing its holdings.
Cai Rui pointed out that foreign investors are indeed increasing their holdings, but only a small net increase. The biggest highlight of the sector clues behind its increase in holdings is "bulk + AI", driven by inflation trading, foreign investors have comprehensively increased their holdings in China's cyclical sector represented by bulk trading. China's macro data and policy orientation exceeded expectations, coupled with the energy and materials sectors benefiting from the recovery of global commodity markets, and the return of reflation trades, all of which led to foreign investors increasing their holdings in China's cyclical sectors across the board.
In terms of sectors, Cai Rui pointed out that foreign investment in AI-related software and hardware sectors has increased significantly. Among them, the IT sector has the largest increase, and the proportion of the corresponding sector in the market after the increase is the highest among the 11 sectors. In addition, foreign investors' sentiment towards the large consumption sector has been restored. Foreign investors were previously cautious about China's large consumption sector as a whole, but in the recent rebound, the positions of top foreign brokerages in both optional and required consumption have increased.
He believes that foreign investors are still reducing their holdings in the medical sector. Overseas uncertainties, continued medical insurance cost control, and repeated postponements of the Fed's interest rate cut expectations have put pressure on the medical sector of Hong Kong stocks. Foreign investors are still cautious about the financial real estate sector, and their proportion has further declined. The real estate sector was flat, and the sector has rebounded recently, but foreign investors have not followed suit.
In Zhang Yidong's view, the current inflow of overseas funds into Hong Kong stocks is a profit-seeking behavior of switching between high and low. Long-term funds, especially the world's large asset management companies, have only recently taken out some funds from high-level assets, profited from the overcrowded strategy of longing US technology stocks and longing Japan, and took out a little money to invest in Chinese assets.
"However, in the latter part of the second quarter or the beginning of the third quarter, some foreign investors may 'pocket profits' on the Chinese assets purchased in the current period. At that time, foreign investment will enter the holiday season; In addition, the balance of the US reverse repo account may return to a low level, and the US reverse repo market caused a liquidity shock in 2019. The 10-year yield of U.S. bonds is difficult to low, and the high interest rate environment has a great impact on U.S. commercial real estate, and the delay in interest rate cuts will eventually affect small and medium-sized financial institutions. Zhang Yidong analyzed.
How to lay out Hong Kong stocks?
In this context, for investors, how should they allocate Hong Kong stocks in the future?
Chen Gang believes that there are still two main lines in the current industry, one is the high-dividend sector, mainly financial, oil and gas exploration, coal mining, electricity, shipping, household appliances, telecommunications, etc., these sectors have benefited from the mainland's macroeconomic recovery, as well as directly benefited from the market's expectation of dividend tax reduction and exemption for southbound funds. The second is the new economy sector, mainly Internet technology, plus consumption, biomedicine, etc.
"This year, the scale of buybacks of Hong Kong's leading Internet technology companies has been significantly enlarged, coupled with the macroeconomic recovery and clearer regulatory policies, the performance of technology companies is more worth looking forward to." Chen Gang said.
In Yan Zhaojun's view, there are several aspects that will receive attention in the future. First, the technology and biomedicine that benefit from the return of foreign capital, such as the Hong Kong stock Internet, after reducing costs and increasing efficiency, business adjustments, profit expectations have stabilized and shareholder return expectations have increased, and increased buybacks have brought layout opportunities in the context of boosting confidence; the second is construction machinery, power equipment and durable consumer goods supported by industrial policies; Third, the real estate "trade-in" has been launched one after another, and it is expected that the domestic housing and agency construction of the head central state-owned enterprises will perform well, and the improvement of real estate expectations and risk appetite in the capital market is expected to drive the income of the domestic insurance investment side to rise; Fourth, copper mines, household appliances, textiles, shipping, international consumer goods, etc., which benefit from the recovery of overseas economic prosperity; Fifth, the high-dividend sectors with stable cash flow are telecommunications, coal and oil.
Zhang Yidong believes that this year's A-shares and Hong Kong stocks are a bullish market with a strong rebound. From the point of view of time, before the U.S. election, in October this year, the probability of Hong Kong stocks rising from the year's highs is greater. It may be a period of volatility from the late second quarter to the beginning of the third quarter.
He suggested focusing on two types of assets, one is high-dividend assets, and the other is core assets, which are high-quality earnings assets.
In the view of Wei Wei, chief analyst of Ping An Securities Strategy, since April, the main line of the market has switched from the original "fundamentals" to "liquidity", and Hong Kong stocks have benefited from this round of global capital rebalancing, and the capital of Hong Kong stocks has continued to improve.
He suggested paying attention to the three main lines of dividends + going to sea + Internet. First, the dividend sectors of Hong Kong stocks preferred by southbound funds, such as petroleum and petrochemicals, non-ferrous metals, coal, etc.; the second is the overseas sector of advantageous industries, such as construction machinery, new energy, textile and clothing, and home furnishing, which account for a high proportion of overseas income; The third is the Internet sector, under the new "National Nine Articles", assets with stable growth, high dividends and low valuation will further gain the favor of investors.
The recovery of the secondary market helps IPOs?
In fact, in recent years, both the number and the total number of Hong Kong IPOs have been declining. However, in recent times, with the gradual improvement of the secondary market, the situation of corporate IPOs has improved.
Wind data shows that as of May 16, a total of 95 companies in Hong Kong stocks have their application status shown as "processing". In addition, the number of companies submitting statements to the Hong Kong Stock Exchange showed an overall upward trend, with Choice data showing that there were 13 in February, 27 in March and 21 in April.
Chen Yiting recently publicly stated that the situation seen in the second half of April has brought great hope to the Hong Kong Exchange. Last year, the Hong Kong Stock Exchange further relaxed the listing requirements for Specialist Technology Companies, and many of the companies that may be listed in Hong Kong are in the field of expertise.
Chen Gang pointed out to Jiemian News that in 2022 and 2023, there will be 87 and 70 IPOs in the Hong Kong stock market respectively, with a financing amount of HK $103.4 billion and HK $47 billion respectively, which is a very significant decrease compared with 2018-2021. With the recovery of the secondary market of Hong Kong stocks, it will significantly contribute to the acceleration of the primary market, and it is expected that the number of IPOs and the amount of funds raised will rebound this year.
In Chen Gang's view, from 2018 to 2021, the IPO performance of the Hong Kong stock market was very hot, with a large number of IPOs, a large amount of financing, and many super-large IPOs.
Starting from 2022, it can be seen that the listing of large Internet companies has basically been completed, and the secondary listing of star Chinese concept stocks listed on the US stock market in Hong Kong has also been basically completed, so the large-scale IPOs in the Hong Kong stock market will decrease significantly in 2022 and 2023.
He expects that, on the one hand, in the future, more large-scale IPOs of Hong Kong stocks will come from companies that have been listed on the A-share market to list in Hong Kong (such as Midea Group's second submission to the Hong Kong Stock Exchange); On the other hand, future large IPOs may no longer be mainly from new economy sectors as in 2018-2022, but may mainly come from traditional industries.
Futu's research team pointed out that changes in the Hong Kong IPO market depend on the recovery of economic fundamentals, the liquidity of the secondary market, and changes in investment sentiment. From the current point of view, if the secondary market continues to be optimistic and the valuation of Hong Kong stocks continues to repair, it will be conducive to the recovery of investment sentiment in the IPO market and the recovery of valuations.
Wan Yong, chairman of Sullivanjie Liyun Technology, told Jiemian News that there are currently about 100 companies in the Hong Kong stock market queuing up for listing, and the number of companies submitting listing applications at the end of April has increased significantly, and it is expected that some projects with large fund-raising amounts will be listed later. Hong Kong stocks have continued to rise recently, and valuations in the secondary market have begun to recover, which can also boost the market confidence of issuers and investors.
Some senior institutional sources said frankly that the current Hong Kong stock IPO market is mainly facing problems such as low fund-raising, high breakage rate, low valuation of listed stocks, and low motivation for funds to buy new shares.
Wen Tianna, a senior investment banker, told Jiemian News that the new stock market needs a strong secondary market to support, and the current Hong Kong stock market has seen a significant recovery. Now is a good start and a strong boost to overall market confidence.