Huaxi Securities released a research report saying that the “repurchase wave” mostly occurred during the bottom of the market. When the market is at a low level, the company buys back shares to send a signal to the market that the company's value is undervalued, shows confidence in the company, and helps boost market sentiment. The proposal focuses on non-essential consumption, IT, and industrial sectors where repurchase amounts for Hong Kong stocks have been at historically high levels since this year, and corporate repurchases are highly catalytic for stock prices and have good profit levels. It is recommended to allocate industry ETFs and leading individual stocks.

▍ The main views of Huaxi Securities are as follows:

Repurchase and Index Fit - Market Overview, Looking at Historical Data, Market Repurchase Amount Trends Release Large Market Index Signals

Since 2015, the market repurchase amount fit curve has certain signal characteristics for the Hang Seng Index trend. By comparing historical data, it can be seen that when the repurchase amount rises by a large and significant margin, it is more likely to correspond to the subsequent rise in the Hang Seng Index. Since May of this year, there has been a marked increase in repurchase amounts and continues to be high, sending a positive signal.

Through analysis and profit forecasting of the repurchase amount and index fit of each industry segment, high profit expectations+high repurchases or promote a rebound in the segmented circuit

The three sectors of non-essential consumption, industry, and IT had the highest index and repurchase amount/volume comparison between 2015-2022. Both the industrial and IT industries have had historically high repurchase amounts in recent months. According to previous analysis of how much the industry's repurchase amount fits with the industry index, these two industries are expected to usher in a phased market in this round of continuous repurchases.

The profitability of the entire Hong Kong stock industry is expected to increase further in 2024. According to expectations, net profit growth will continue to exceed revenue, YoY +12.81%. Currently, the overall sentiment of the Hong Kong stock market is pessimistic. As of December 21, 2023, the price-earnings ratio of the Hang Seng Index (HSI.HI) was 8.04 times, and the quantile for the past three years was only 4.19%. Market sentiment is expected to pick up under improving profit expectations and the historical peak of repurchases in various industries. It is recommended to focus on non-essential consumption, information technology, and industries where repurchase amounts have been at historically high levels since this year and corporate repurchases have had a significant impact on stock prices.

Risk warning:

US economic growth and inflation are stronger than expected, and the rate and magnitude of the decline in US bond interest rates is lower than market expectations, changes in geopolitical relationships, overseas black swan events, and macroeconomic downturn.