CICC: Hong Kong stock market is expected to show considerable resilience

Source: CICC Strategy

Analysts: Wang Hanfeng Liu Gang, etc.

While volatility may occur, it also provides better opportunities for intervention.

CICC released a research report pointing out that the short- term A-share market may still be expected to continue to recover amid fluctuations, but in the second half of the year, under the influence of internal and external uncertainties, the market path may not be unilaterally upward, and the market’s absolute return depends on the space. Whether China can achieve sustained stabilization and improvement of fundamentals as soon as possible. Structurally, CICC proposes to focus on “stable” in the second half of the year . In terms of overseas Chinese stocks, CICC believes that although market turmoil caused by concerns such as policy tightening in the external market may still be the main source of volatility in the overseas Chinese stock market, it is expected that the Hong Kong stock market is still expected to show considerable resilience , mainly due to Benefit from the support of more favorable policies, more attractive valuations, and continued inflow of southbound funds. In other words, while volatility may occur, it also provides better opportunities for intervention.

The recent performance of US stocks is reflected in the dual impact of inflation and growth expectations. The announcement of higher-than-expected inflation has exacerbated investors’ concerns about further tightening of US monetary policy; the domestic price level is relatively moderate, and the main contradiction is still weak demand . Since the meeting of the Political Bureau of the Central Committee at the end of April, the policy has continued to increase to stabilize growth and expectations. The latest social financing and M2 data show that liquidity has eased and increased, and market interest rates have fallen instead of rising after the data. At the same time, from the beginning of the year to the end of April, the adjustment of the Chinese market has been relatively large, and the valuation is relatively low. Recently, the domestic epidemic situation has improved significantly, the resumption of work and production has deepened, and the market sentiment has gradually improved, which is more stable than overseas .

Looking forward, CICC believes that the policy cycle between China and foreign countries will continue to be reversed , and the Chinese market may remain relatively resilient relative to overseas in the second half of the year. With low inflation, sufficient policy space, and continued fundamental repair, the Chinese market already has medium-term investment value. Considering that liquidity easing is still increasing, the overall market recovery space is not significant, and market sentiment may have some inertia to improve, CICC believes that the short-term A-share market may still be expected to continue to recover amid fluctuations, but in the second half of the year, in Under the influence of internal and external uncertainties, the market path may not be unilateral upward, and the room for absolute market gains depends on whether China can achieve sustained stabilization and improvement of fundamentals as soon as possible. Structurally, CICC proposes to focus on “stable” in the second half of the year . The recent growth style has been widely concerned by the market. CICC believes that under the background of loose liquidity, some of the growth in the early stage, the valuation and profit are gradually matched, and the prosperity level is maintained at a high level. Repair, and the opportunity to switch the strategic style to growth requires attention to the progress of overseas inflation and stable growth in China.

Currently focusing on three directions:

1) Fields with “steady growth” or policy support: infrastructure (traditional infrastructure and some new infrastructure), building materials, automobiles and housing-related industries have policy expectations or actual policy support;

2) Fields with low valuation and relatively low correlation with macro fluctuations, especially some high dividend fields: such as infrastructure, power and public utilities, hydropower, etc.;

3) Some areas where the fundamentals have bottomed out, the supply is limited or the prosperity continues to improve: agriculture, some non-ferrous metals and some chemical sub-sectors, coal, and photovoltaic and military industries.

CICC reminds you to pay attention to the following aspects in the near future:

1) May financial and inflation data released. The recently announced new loans in May were 1.89 trillion yuan, an increase of about 390 billion yuan year-on-year. Short-term corporate loans and bill financing are still the main sources of loan growth, and social financing increased by 2.79 trillion yuan, an increase of about 8,400 yuan year-on-year. 100 million yuan, which was higher than expected in the context of more relaxed policies. The year-on-year growth rate of M2 increased from 10.5% in April to 11.1% in May. The increase rate continued to be higher than the growth rate of social financing balance, which has reached a high point in 2020, which further reflects the strength of macro policies. From the perspective of inflation data, pig prices have risen, but the supply-side logistics disturbance has eased, the suppression of the epidemic on the demand side has not yet been significantly eased, and the growth of service and optional commodity prices has slowed down. In May, the CPI was unchanged from the previous month at 2.1%. PPI further slowed to 6.4% from 8.0% year-on-year. Domestic prices are more moderate.

2) Policies continue to focus on “stabilizing growth”. The Ministry of Finance and the State Administration of Taxation issued an announcement stating that, starting from July 1, 2022, the industry scope of the policy of fully refunding the value-added tax credits will be expanded to support enterprises to reduce their burdens and get out of trouble; the executive meeting of the State Council emphasized that the downward pressure on the economy is still prominent, and all localities must Realize the responsibility of ensuring the well-being of the people, ensure reasonable economic growth in the second quarter, and stabilize the overall economic market; local property market relief policies have been implemented one after another, and Guangzhou’s purchase restrictions have been loosened. Beijing can apply for deferral of housing provident funds, Qingyuan, Linfen, Fuzhou, Wuhan There are now preferential and subsidy policies in the property market in many places.

3) Progress of the domestic epidemic: The recent outbreak of clustered epidemics in Beijing broke the trend of social disarmament for several days in a row. The area around Beijing was also affected. There were also new social cases caused by clustered epidemics in Shanghai. The number of confirmed cases in Inner Mongolia is also on the rise, and the disturbance of the epidemic still exists. We will continue to pay attention to the process of resumption of work and production.

4) Overseas progress: The United States recently announced that the CPI in May increased by 8.6% year-on-year, reaching a new high; the core CPI increased by 6% year-on-year, also higher than expected. High inflation has brought major challenges to the Fed, which may require the Fed to implement a more aggressive monetary policy Tightening policies to deal with inflation, but according to economic laws and experience, this may increase the downward pressure on the economy and increase the probability of recession. After the CPI data was released, the three major U.S. stock indexes fell by nearly 3%, the largest daily decline in nearly three weeks; the yield on the U.S. Treasury bond rose, with the yield on the 10-year benchmark treasury bond rising to 3.16%.

In terms of overseas Chinese stocks, CICC pointed out that despite the risk aversion that enveloped the global stock market last week and the continued turbulence of US stocks, the overseas Chinese stock market still showed rare resilience. The positive policies continued to superimpose the improvement of economic data, and the overseas Chinese stock market continued to strengthen last week. In particular, the Hang Seng Technology Index rose 9.75%, driven by the marginal improvement in the regulatory environment.

Since mid-May, the overseas Chinese stock market has continued to rebound. The MSCI China Index has risen by more than 17%. Among them, technology growth stocks have led the gains in anticipation of marginal improvement in the regulatory environment. Looking ahead, CICC believes that marginal easing of regulatory stance and still-attractive valuation levels will continue to support the market. In addition to policy factors, economic data also played a positive role in picking up after the easing of epidemic prevention and control measures last month.

However, in the process of repairing, CICC still needs to remind investors to pay attention to potential fluctuations caused by factors such as profit-taking, external market volatility, and poor market expectations (the actual repair of growth and corporate earnings) . Looking ahead, CICC believes that the core contradiction that investors are concerned about may turn to whether policy measures can produce actual results. Valuations and sentiment tend to be the first to repair during the initial stages of a market rally, while the macro environment and bottoming out earnings are key factors in the continued rally.

On the whole, although the market turmoil caused by the tightening of external market policies and worries about economic recession may still be the main source of fluctuations in the overseas Chinese stock market , CICC expects that the Hong Kong stock market is still expected to show considerable resilience , mainly due to the benefits. Supported by more favorable policies, more attractive valuations and continued inflow of southbound funds. In other words, while volatility may occur, it also provides better opportunities for intervention.

Editor/Viola

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