DDN Business Insider | Foreign capital acts as key factor in A-Shares' surge and HK stocks' fluctuation: Economist
Editor's note: In light of the quick implementation of earlier announced major policies, the Hong Kong stock market has been continuously hitting new highs during the National Day Golden Week. Where will the market head to after the holidays?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. In light of the quick implementation of earlier announced major policies, the Hong Kong stock market has been continuously hitting new highs during the National Day Golden Week. Where will the market head to after the holidays? To discuss this topic, we have invited Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, and Yu Fenghui, Economist and Expert at the Hong Kong Top 100 Research Center and new finance, to provide their insights. Welcome, both!
【Anchor】First, I』d like to ask Mr. Yang, how do you view the performance of the Hong Kong stock market during the mainland』s A-share market holiday, as well as the drivers behind this trend?
During the A-share』s holiday, there was no influx of northbound capital. The primary support came from foreign investments, indicating that the basket of policies aimed at supporting economic recovery has successfully gained recognition from global capital. Many Wall Street investment banks have expressed optimistic views on China's unexpected policies and the Chinese capital market. Some, like Cooper, have even stated that they are preparing to buy all Chinese assets that』s available. This is a signal that after more than three years of decline, many quality assets in China are currently severely undervalued.
Moreover, the introduction of favorable policies such as interest rate cuts and reserve requirement ratio reductions by multiple departments, including the central bank, the Financial Regulatory Bureau, and the Securities Regulatory Commission, along with the adjustment of existing mortgage interest rates and the further steps deployed by the central securities authority from a top-level perspective, may continue to drive growth in the HK stock and real estate markets. These favorable measures serve as the basis for the strong performance of the Hong Kong stock market.
【Anchor】Great, Mr. Yu, what do you think are the reasons behind the strong performance of the Hong Kong stock market?
Three are both domestic and international drivers at play here. Domestically, the People's Bank of China lowered interest rates and implemented significant monetary easing. These are both aimed at directly supporting the stock market and the real estate market. The central bank has made it clear on two fronts: first, they will provide loans to enterprises at an annual interest rate for as low as 1.7%, thereby allowing companies to repurchase their own shares. The other is that brokerage firms and other investment banks can use their stocks as collaterals to secure financing from the central bank. These two measures effectively lifted previous restrictions, allowing modern capital to enter the stock market, boosting it up and away from previous declines.
Moreover, similar to the A-share market, the Hong Kong market has also been through a prolonged period of stagnation and decline. Current valuations have attracted some foreign capital, and many international investors believe that a favorable trend is now emerging for the Hong Kong market. Whereas previously, these investors have mentioned that everything was ready for the HK stock market to rise, with just few pieces missing, and now with the Fed's interest rate cuts and the People's Bank of China's monetary injections into the stock market. the puzzle is likely complete for these investors to join the game.
【Anchor】Alright. Mr. Yang, last Thursday, the Hong Kong stock market experienced a pullback. What key factors do you think will influence the future trend of the Hong Kong stock market?
On October 3rd, the Hong Kong stock market saw a significant drop in the early trading session, but it soon rebounded in the afternoon trading session. During the rebound, the index's decline narrowed, and some individual stocks surged once again. The future trend of the Hong Kong stock market still looks promising for now. On the one hand, after the market correction, northbound capital will begin to flow southward, bringing incremental funds to the Hong Kong market. On the other hand, with the Fed rate cut, more foreign capital will likely flow from higher-valued Western and Japanese markets into the relatively undervalued Hong Kong stock market. During the Fed's rate-cutting period, the global capital markets face a substantial shift; the previously strong-performing Western markets may encounter downturn risks, while A-shares and Hong Kong stocks could experience a period of recovery and enter into a bull market.
【Anchor】Yes. Mr. Yu, what factors do you think will influence the future trend of the Hong Kong stock market?
The key factors are essentially two-fold. The first is the global economy. Previously, there were concerns about a U.S. economic recession, but now, such a recession appears much less probable. At the same time, the Fed's interest rate cuts will likely stimulate growth across global stock markets. The Hong Kong stock market is relatively market-oriented, while Hong Kong dollar is essentially pegged to US dollar; this means that the external economic environment will bring positive effects for Hong Kong stocks. From the domestic perspective, we still need to observe the recovery of the Chinese economy. The significant monetary injection will certainly benefit the Hong Kong market as well. These are the two key factors influencing the future trend of the Hong Kong stock market.
Of course, there are also international factors that can affect the Hong Kong market, such as geopolitical issues including U.S.-China relations, the Middle East situation, and the Russia-Ukraine conflict, which could bring temporary negative impacts to the market. However, as previously mentioned, the valuation of Hong Kong stocks is still relatively low. so the positives will likely far outweigh the negative effects brought by these geopolitical issues.
【Anchor】Good. The Hong Kong stock market performed strongly last week. Mr. Yang, what do you think about the potential for further upsides in the Hong Kong market?
The future trend of the Hong Kong stock market is influenced by several key factors. One is the implementation of policies; for now, the announced policies have significantly exceeded expectations. If these policies can be fully and effectively implemented, especially fiscal policy that can boost investment and stimulate consumption, then expectations for economic recovery will further strengthen, and the Hong Kong stocks will continue to rise. We should also pay attention to the inflow of foreign capital and the southbound capital from the north, which can provide additional funds for the Hong Kong market. Furthermore, we should pay attention to whether the Fed will continue to cut interest rates in the meetings of November and December. Therefore, there is still significant room for growth in the Hong Kong market. From a valuation perspective, the valuations of Hong Kong stocks are still far below those of European, American, and Japanese stock markets.
【Anchor】Good. What does Mr. Yu think about the potential for further increases in the Hong Kong market?
Based on the current situation, I believe there is still room for further increases in the Hong Kong market. This is due to several factors: the recovery of the global economy, the Fed's monetary easing, and the People's Bank of China injecting funds directly into the real estate market, especially into the stock market. Additionally, the low valuations of Hong Kong stocks make them very attractive to foreign capital, and the recovery of the mainland economy provides fundamental supports for Hong Kong. Once the fundamentals are supported, the performance of listed companies in Hong Kong should also gradually improve. Therefore, I remain relatively bullish in the medium to long term, although short-term fluctuations are inevitable.
【Anchor】Given the current situation, Mr. Yang, which sectors do you think present the best opportunities in the Hong Kong and A-share markets? What risks should be noted?
From a risk perspective, the main concern is that there has been a significant short-term increase, with prices rising very rapidly and trading volume also surging. Therefore, both the A-share and Hong Kong stock markets face risks of a pullback after these recent sharp gains. However, in the medium to long term, there is still an upward trend at play. As for specific sectors, there are significant investment opportunities in quality blue-chip stocks and technology giants in the Hang Seng Tech Index. In the A-share market, we should pay attention to leading consumer blue-chip stocks and technology leaders, which are currently undervalued and have substantial appreciation potential.
【Anchor】How does Mr. Yu view the current market risks?
The main concern is that the recent increases have been too rapid, with historical precedents of such significant surges being too rare. Historically, no central bank has explicitly injected capital into the stock market like this. So, a macroeconomic recovery is still certain in this situation. However, if the pace, speed, and quality of the recovery, including that of the real estate sector, do not meet expectations, along with insufficient support from the central bank, both the Hong Kong and A-share markets will face great downturn risks. Another uncertainty is the actual operating performance of listed companies in both markets, which represents risks to both the Hong Kong and A-share markets. Thus, there are two main areas of uncertainty: macroeconomic factors, including the central bank's monetary policies, and the performance of companies. These uncertainties represent significant risk points for both the Hong Kong and A-share markets. In this context, while the stock market may rise due to liquidity injections, such increases can only be temporary. Long-term growth must rely on comprehensive macroeconomic recovery and substantial improvement in corporate fundamentals.
Despite a brief pullback in the Hong Kong market last week, the overall trend remains strong. Zhang Yingqun, senior analyst at Kaimin Securities, stated in an interview with DotDotNews that several large foreign brokerage firms had previously expressed a bearish view on the Hong Kong market and were cautious about mainland China's economic growth. However, this sentiment has recently shifted. These firms are now expressing confidence in Hong Kong stocks, and are preparing to increase their allocations towards Chinese stocks as the A-share market is still at low levels. Taking that into consideration, it is estimated that after a slight pullback, the Hang Seng Index will continue to rise and gain back long-term losses, and will likely to sustain the current growth momentum.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
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