Guotai Junan released a research report saying that the “three factors” resonate in favor of Hong Kong stocks. First, there is a marginal improvement in Hong Kong stock earnings; second, US debt may peak according to the “M” pattern and will decline in the medium term; third, there may be an improvement window for Sino-US relations in November. Short-term marginal overseas liquidity improved. Growth was the main focus during the rebound period, focusing on the Hong Kong stock Hang Seng Technology Index, Internet retail, innovative drugs, semiconductors, and gold. We will continue to embrace high-dividend assets over the medium to long term, and we are optimistic about high-dividend varieties with high stability, such as telecommunications operators, petrochemicals, and public utilities.
The data showed that Hong Kong stocks fluctuated downward last week, and most sectors adjusted. Last week, ten-year US Treasury yields approached 5% again. Risk appetite declined due to increased uncertainty compounded by regional conflicts, and major global stock indexes generally declined. The Hong Kong stock Hang Seng Index fell 3.6% cumulatively last week, the Hang Seng State-owned Enterprises Index fell 4.0%, and the Hang Seng Technology Index fell 5.6%.
According to Guotai Junan's observation of recent market adjustments, Hong Kong stocks are more resilient than A-shares. Among them, the top performing industries are media, petroleum, petrochemical, and telecommunications.
1) At the general market index level, the Shanghai Stock Exchange 50 Index currently has 4.1% of room until the end of October 2022, while the Hang Seng Index is still 16.9% away; the Shanghai and Shenzhen 300 Index has now reached the position of the end of October 2022, while the Hang Seng Technology Index is still 28.4% away. Therefore, from the perspective of a general market index, Hong Kong stocks are more resilient than A-shares.
2) At the sector level, there are many industries where Hong Kong stocks are still rising compared to the end of October 2022, and the average increase is greater than that of A shares. The industries with the highest gains are media, petroleum, petrochemical, and telecommunications. Looking at AH comparison, the average increase in the Hong Kong stock market was 20.3%, and the average increase of A shares was 12.1%. Among the declining industries, the average decline in Hong Kong stocks was 10.5%, while A shares were 11.3%.
The bank said that behind the resilience of Hong Kong stocks, it is mainly supported by three factors: better performance and profit expectations, high dividends, and undervaluation, and that resilience may continue in the future.
1) The revenue ratio of weighted stocks in the Hong Kong stock media sector in 2023 and profit expectations in 2024 were all higher than those of A-share weighted stocks.
2) The “three barrels of oil”, a weighted stock in the Hong Kong petroleum and petrochemical sector, relied on the two major advantages of high dividends and undervaluation. The stock price showed greater resilience than A-shares.
3) The three major operators in the Hong Kong stock communications sector also rely on the two major advantages of high dividends and undervaluation. As a result, the resilience shown by the Hong Kong equities weighting sector is supported by performance and profit expectations.
In addition to this, in terms of sectors related to high dividends (energy, communications), Hong Kong stocks have two major advantages over A-shares: higher dividend rates and lower valuations, and these two major advantages will not change over a long period of time, so the resilience of Hong Kong stocks may continue in the future.