After ten consecutive days, will Hong Kong stocks “stop flaming”? Is it a rebound or a reversal?

Recently, the Hang Seng Index reached ten consecutive highs, setting a record for the longest continuous increase since 2018. After being scolded for 3 years, the Hong Kong stock market finally raised its eyebrows and sighed again!

The week before the May Day holiday (April 22 to April 26,), the Hang Seng Index surged 13.43%, the biggest weekly increase since October 2011.

During the May Day holiday period (May 2 to May 3), Hong Kong stocks continued to rise in the absence of southbound capital. Among them, Hang Seng Technology surged 7.31%, while Hang Seng Index and Hang Seng State-owned Enterprises rose 4.01% and 4.36% respectively.

Starting from a low point within the year, the cumulative increases of the Hang Seng Index, Hang Seng State-owned Enterprises, and Hang Seng Technology reached 24.18%, 31.40%, and 33.33% respectively, all entering a technical bull market (data as of May 6).

The rate of increase is faster than most people can imagine. Some friends are thrilled to watch others make money; of course, “Gaihai Disciples” (people who bought China Internet) are even more excited. Is the unbundling really promising?

People who know about the capital market must know that as an international market, the pricing of Hong Kong stocks is not only influenced by domestic fundamentals, but also has a lot to do with domestic and foreign capital.

Since this year, southbound capital has accelerated markedly, which is an important reason why the Hong Kong stock market began to strengthen during the same period.

According to Wind data, as of April 30, the cumulative inflow volume this year reached HK$213.5 billion, exceeding two-thirds of the full year of 2023.

Not only is domestic investment strong, but foreign investors are also fond of Hong Kong stocks.

The Bank of Japan began the interest rate hike process on March 19 this year, leading to a rapid depreciation of the yen, compounding Nikkei and US stocks into a volatile pattern. Driven by the rebalancing of global asset positions, overseas investors began to withdraw from US stocks and Japanese stocks, and gradually make up for Hong Kong stock assets.

Judging from the monthly changes in the shareholding ratio of different intermediaries in Hong Kong stocks, the increase in the shareholding ratio of international intermediaries has been particularly rapid since February, which may indicate that international capital has turned its attention to Hong Kong stocks with full potential.

Meanwhile, even during the May 1st holiday when southbound capital was absent, Hong Kong stocks continued their strong performance, or once again confirmed that this round of market was mainly driven by Hong Kong's local capital and foreign capital.

Since the beginning of this year, favorable policies to optimize the cross-border connectivity mechanism and promote the collaborative development of capital markets between the two places have continued to be implemented, further catalyzing the rapid upward trend in the Hong Kong stock market.

On April 19, the Securities Regulatory Commission announced 5 capital market cooperation measures with Hong Kong:

The first three are easing restrictions on the Shanghai-Shenzhen-Hong Kong Stock Connect, and the last one is improving the financing effect of Hong Kong stocks. The policy directly hit the two major pain points of Hong Kong stocks: poor liquidity and financing difficulties.

Furthermore, the Hong Kong Monetary Authority is also using practical actions to increase liquidity. On April 22 and 23, the Hong Kong Monetary Authority released HK$525 million and HK$500 million in liquidity to banks through discount windows, respectively, to inject new vitality into the market.

Apart from the recent rise, everyone is aware of the previous performance of Hong Kong stocks, and after experiencing a rapid rise recently, Hong Kong stocks are still relatively cheap.

As of May 3, the historical valuation quantiles of the Hang Seng Index and the Hang Seng Technology Index were only 9.0% and 11.1%, respectively. Compared to the valuation scores of major overseas stock indexes, the Hong Kong stock market is a valuation depression. Relatively “cheap” Hong Kong stocks provide investors with more cost-effective investment options, and investment enthusiasm can easily be ignited.

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Hong Kong stocks failed to continue their gains in the previous two days. Is this wave of market coming to an end?

Judging from historical data, compared to the previous round, there may still be room for the current rise in Hong Kong stocks.

Affected by favorable domestic policies at the end of October 2022, the Hong Kong stock index showed a relatively significant upward trend. By January 27, 23, it reached a phased high. During this period, the increase reached 52%, while Hang Seng Technology increased by more than 70%.

The current performance of the Hong Kong stock market is strong. If market sentiment continues to warm up after favorable policies are introduced, Hong Kong stocks tend to be more flexible, and the increase may be more significant.

So, taking a comprehensive look, there is still room for Hong Kong stocks to rise, but we can't predict the market prospects. Short-term investors might as well wait and see. For long-term investors, now that the value of Hong Kong stocks is gradually being re-exploited, it may be a good time to allocate them!