Guotai Junan released a research report saying that in a situation where overseas risk events have not been fully resolved and may disrupt the Hong Kong stock market, the high-dividend style with low risk characteristics still has allocation value. It is recommended to focus on high-dividend industries such as telecommunications operators, energy, and utilities. On the domestic side, the new “National Nine Rules” of China's capital market will help investors focus on assets with lower valuations, more stable growth, and higher dividends. However, the Hong Kong stock Internet policy adjustments and valuation adjustments have been sufficient in the past few years. Stock prices are entering the batting zone, and opportunities for Chinese Internet companies can be examined from a longer-term perspective. In terms of industry choices, high dividends were the main focus, and Hong Kong stocks began to rebound on the Internet.
Guotai Junan's main views are as follows:
The Hong Kong government's consultation with the industry on draft new tax rules boosted sentiment. The US expected interest rate cuts to be delayed again, and the overall rise in Hong Kong stocks last week.
Domestically, the CPI fell beyond expectations in March, indicating that it will take time for demand to recover. In response to the new tax policy, the Treasury Bureau of Hong Kong, China stated that it will further strengthen the tax preferential system for funds, single family offices, and ancillary benefits to attract more funds and family offices with potential to set up branches in Hong Kong. Hong Kong stock sentiment rose sharply on the same day.
Overseas, the US inflation data for March exceeded expectations, showing that US inflation is still resilient, and the interest rate cut originally anticipated by the market in June was delayed again until September. Hong Kong stocks rose and then fell last week. The Hang Seng Index fell 0.01% cumulatively throughout the week, the Hang Seng State-owned Enterprises Index rose 0.27%, and the Hang Seng Technology Index rose 0.68%. The rise in gold prices led the way, with industry regulation insurance leading the decline.
The historical valuation of the Hong Kong stock Internet industry is low. Combined with the recent repurchase behavior of some representative companies, its allocation value has increased.
Currently, the historical valuation ranking of the Hang Seng Technology Index is lower than that of other Hong Kong stock industries. The Hang Seng Technology Index and the IT industry are 4.4% and 6.1% respectively, while the raw materials and telecommunications industries are 65.92% and 65.89% respectively. Tencent (00700) announced a 100 billion repurchase plan. Assuming that Tencent's stock price remains unchanged in 2024, considering its own dividends and the additional 100 billion repurchase plan, the dividend rate is expected to reach 4.8%, which will bring better investment opportunities than high dividends for A-shares. Alibaba (09988) is the most active Chinese Internet company with a repurchase of 12.5 billion dollars. Alibaba continues to implement active dividend payment and repurchase policies to increase investment value.
The Hong Kong stock internet implied a high risk premium, and valuation revisions will follow.
Guotai Junan believes that the current undervaluation of the Internet industry implies a high risk premium and uncertainty. The risk premium index of the Hang Seng Technology Index is at a standard deviation of 1 times above the average. The subsequent Hong Kong stock Internet valuation expansion will have to wait for continuous improvement in domestic demand policies and economic data. However, considering existing policy support in some fields and repurchases from companies such as Tencent and Ali, the Hong Kong Stock Internet's low valuation and excessive pessimistic risk premiums will usher in a major recovery. In addition to this, leading Hong Kong stock internet companies have continued to increase their investment in the AI field and have made effective progress, and profit expectations are expected to improve.
Risk factors: 1) Domestic economic recovery fell short of expectations; 2) US economic slowdown caused recessionary transactions; 3) international geopolitical friction heats up; 4) Federal Reserve monetary policy easing falls short of expectations.