China Business Daily reporter Gu Mengxuan Xia Xin reports from Guangzhou and Beijing
Since late April, the Hong Kong stock market has continued to recover. Wind data display, April 22 May 6, Hang Seng Index Achieved "ten consecutive rises", the longest consecutive rise since February 2018. Benefiting from the recovery of Hong Kong stocks, the performance of Hong Kong concept theme funds also rose.
In an interview with China Business Daily, the relevant personage of Guohai Franklin Fund said that this round of rebound in Hong Kong stocks was mainly driven by the significant improvement of capital. The proportion of overseas institutional investors in Hong Kong shares is relatively high. Previously, due to the interest rate increase of the Federal Reserve, liquidity tightening, and the strong performance of the United States, Japan and other markets, they siphoned foreign capital out of Hong Kong shares; Recently, the Federal Reserve announced at the interest meeting in May that it would slow down and shrink the balance sheet, and the market expected that liquidity would ease. At the same time, the stock market valuations of the United States, Japan, India and other countries have been at relatively high levels. Compared with Hong Kong stock valuations, Hong Kong stock valuations are more attractive, so they return to the Hong Kong stock market. At the same time, southward funds also increased their positions in Hong Kong stocks in April.
Hang Seng Technology Index rose 12.2%
This time, the performance of Hong Kong stocks can be described as "well grounded". Wind data shows that in the latest month up to May 8, the Hang Seng Index rose 9.5%, and the Hang Seng Technology Index rose 12.2%.
In view of the good performance of Hong Kong's economy and stock market in China, on May 5, the Financial Secretary of the Hong Kong SAR Government, Chen Maobo, issued a document saying that Hong Kong's economy maintained its growth momentum. In the first quarter of this year, Hong Kong's GDP grew by 2.7% in real terms on an annual basis, increasing for five consecutive quarters, and accelerating to 2.3% on a quarterly basis after seasonal adjustment. Chen Maobo pointed out that the atmosphere of the Hong Kong asset market has also improved. Hong Kong shares have risen for nine consecutive trading days, and the Hang Seng Index has risen by nearly 14%, with an average daily turnover of more than HK $128 billion.
From the perspective of capital inflow into the industry, Wind data shows that, according to CITIC classification, as of May 8, the top three industries in which southbound funds held 81.6 billion shares, 46.7 billion shares and 30.5 billion shares were banks, real estate and commercial retail respectively; The top three industries in terms of holding market value are banking, media and petroleum and petrochemical, with holding market values of 463.1 billion yuan, 385.18 billion yuan and 241.06 billion yuan respectively.
The relevant personage of Jingshun Great Wall Fund said that China's economy has improved year on year for three consecutive quarters. In the first quarter, domestic GDP increased by 5.3%. The growth rate of major economic indicators has increased month on month. Production supply and consumer investment have gradually recovered. Foreign investment banks have revised their expectations for China's economic growth. "The pessimism of the market is expected to gradually repair as the country has successively introduced the old for new policy for the automobile, household appliances, construction machinery and other industries. According to the latest quarterly report, the performance of overseas enterprises is bright, more than the market expectations." said the person.
In addition, the CSRC recently announced five measures to strengthen the Hong Kong financial market, covering economic development, business environment optimization, financial market connectivity, scientific and technological innovation support and market openness, which are expected to further boost the Hong Kong market and enhance its attractiveness.
The return of foreign capital has also accelerated the recovery of Hong Kong shares. According to the analysis of Bi Meng, a financial researcher on the grid, since February this year, southward funds have continued to flow into the Hong Kong stock market, reaching a net purchase of HK $183.7 billion in less than three months, and the net purchase of Hong Kong shares in the year also reached HK $206.3 billion, nearly two-thirds of the total purchase of last year. The return of foreign capital has brought financial support to the Hong Kong stock market and promoted the market rebound.
"Measures such as the expansion of interconnected ETFs, the inclusion of REITs and the optimization of mutual recognition of funds are conducive to meeting the more diversified allocation needs of foreign capital, providing more optional tools and products; further promoting the active Hong Kong dollar yuan dual counter transactions, helping mainland investors save exchange costs, and helping to internationalize the RMB", HSBC Jinxin Shanghai Hong Kong Shenzhen Fund Fu Beijia, the fund manager of the dual core fund of Hong Kong Stock Connect, pointed out that the five measures for cooperation with Hong Kong are the embodiment of further consolidating and supporting the status of Hong Kong as an international financial center in China, and there is still more connectivity cooperation to look forward to in the future.
Fund layout in advance
Previously, when the performance of Hong Kong stocks was not satisfactory, "smart funds" had also been actively distributing Hong Kong stocks, waiting for the opportunity. Wind data shows that in the first four months of 2024, southward funds have also been kept in a net inflow state. In the whole year of 2023, except for June 2023, the southward capital has always maintained a net inflow status, and in August 2023, the net inflow reached a new high in nearly two years.
In the downturn of Hong Kong shares, institutions have already predicted that Hong Kong shares will rebound. Tianhong Fund previously pointed out in an interview with reporters that, according to Bloomberg data, the static P/E ratio of the Hang Seng Technology Index at that time (around December 2023) was 27.9X (X represents multiple, the same below), and the prospective PE (P/E ratio) in 2023, 2024 and 2025 were 20.0X, 15.3X and 11.3X respectively. After the uncertainty of epidemic situation and regulation has been eliminated, the fundamentals of platform enterprises have shown signs of gradual recovery since the second half of 2022, Ali 、 tencent and Meituan While the cost reduction and efficiency increase of large factories continue to drive profit growth, the recovery of the revenue side is also gradually accelerating, and the stable expectation brought by the regular supervision also makes the expansion of the revenue side more smooth.
The relevant personage of Kingsoft Great Wall Fund pointed out that under the low valuation and the rebalancing of internal and external returns, China's assets have a high cost performance ratio among similar assets in the world, and they are optimistic about the important opportunity of foreign capital to reallocate Chinese assets.
In terms of valuation, in 2024, Hong Kong shares experienced a significant retreat before the Spring Festival, of which the maximum retreat of Hang Seng Index in January exceeded 10%, hitting a new low in the past year. "With the price falling, the valuation pressure of Hong Kong stock technology is further released, and the margin of safety is further strengthened." The person said.
The person pointed out that, taking into account the inflation resilience of US stocks, the high volatility of US bond yields and the stagflation risk in the United States, the performance of US stocks entered a period of volatility, and the Hong Kong stock and A-share markets became the choice for reallocation of overseas funds at a high cut and low cut. At present, the valuation of Hong Kong shares is at a historical low, which is also very attractive compared with other emerging markets. The valuation of some leading companies in the Internet, consumption, science and technology, and medicine sectors is at a historical low, significantly lower than that of the leading US stocks. The company's profits gradually recovered. The dividends and buybacks of most shareholders increased to 3% - 5%. The core assets have a high cost performance ratio. There are obvious signs of overseas long-term capital positions. Hong Kong shares may benefit from the seesaw effect of short-term capital reallocation, becoming a haven with a high cost performance ratio.
The performance of the pure Hong Kong stock index fund since this year and the last year can also show the strength of the rise of Hong Kong stocks. Wind data shows that as of May 8, the average return of 237 pure Hong Kong stock funds in the whole market in the last year was -4.22%, and since this year, the average return has risen to 3.42%, an obvious increase.
Three main lines for institutions
Looking forward to the future, Fu Beijia pointed out that the Hong Kong stock market may usher in a more significant repair market, and the three major factors restricting the Hong Kong stock market are expected to be loosened in succession.
In terms of profitability, Fu Beijia believes that the core reason for the weakness of Hong Kong shares is that the profitability of Hong Kong shares has continued to undergo downward revision in the past three years, and because of the dislocation of the recovery cycle, it has lagged behind major markets such as the United States and India in terms of earnings growth. However, from 2023, it can be seen that blue chip companies still have strong profitability resilience when the external environment fluctuates, and the profit growth is expected to accelerate in 2024. It is expected that the overall profit growth of the Hong Kong stock market is expected to lead the world this year, which will become an important force supporting the repair of Hong Kong stocks.
In terms of liquidity, Fu Beijia believes that the liquidity contraction caused by the interest rate increase of the Federal Reserve in the past three years is a very important reason for the decline of Hong Kong stocks. With the end of the interest rate increase cycle of the Federal Reserve, the liquidity dilemma of the Hong Kong stock market is expected to usher in a reversal.
In terms of capital allocation, Fu Beijia said that the current low allocation of overseas investors to Hong Kong shares is close to a historical low. Global funds have a rebalancing demand against the backdrop of rising volatility of overseas assets. Once its reflexivity is triggered, the current implied elasticity of Hong Kong stocks is actually very large. Once the company's fundamentals and geopolitical disturbance factors have improved, the market's expectations of Hong Kong stocks may have a relatively large reversal.
Speaking of promising sectors and fields, relevant personages of Guohai Franklin Fund pointed out that the current valuation of the Hong Kong stock market is still low. It is expected that the price earnings ratio of the HSI will be less than 9 times in 2024, which is still highly attractive. It is expected that foreign capital is also expected to further flow into the Hong Kong stock market. In terms of fundamentals, many Hong Kong stock companies have increased their emphasis on shareholder returns, including increasing dividends and repurchases. It is estimated that the dividend yield of the Hang Seng Index in 2024 is expected to exceed 4%. Looking into the future, the undervalued Hong Kong stocks are expected to get further valuation repair, and there may be opportunities in digital economy, hard technology, upstream resources, telecommunications, power and other sectors.
Fu Beijia said that at present, he is most concerned about three main lines. The first is innovative assets. Benefiting from the great flexibility of operating leverage and the excellent cost reduction and efficiency increase in the early stage, the profitability of the asset light industry is expected to continue to exceed expectations; At the same time, some companies break through new technologies/products to meet the next round of revenue expansion opportunities, which is expected to open the secondary growth curve of revenue. We are optimistic about investment opportunities in innovative drugs, Internet and electronics.
The second main line is to find assets with strong supply constraints, whose prices may be globally priced, such as Non ferrous metals Industry.
Third, Fu Beijia is optimistic about the high dividend assets of Hong Kong stocks. She pointed out that Hong Kong stock dividend asset pricing is far from bubble, and the core is that some enterprises with high cash flow quality have great potential to increase the dividend ratio. Instead of selecting stocks from the static dividend yield, companies that seek to reduce capital expenditure, accelerate the growth of free cash flow, and have a willingness to pay dividends and pay attention to shareholder returns will calculate the expected dividend yield. "This kind of high dividend individual stock has a good defensive nature and long-term allocation value, so it is considered to allocate it as a bottom position," said Fu Beijia.
