Editor's note: The press conference held by the State Council Information Office of China last week announced a package of financial policies, including the reduction of interest rates and benchmarks, which overlapped with the signs of consumer recovery during the May Day holiday and the expected easing of trade frictions between China and the US, injecting a strong dose of confidence into the mainland and Hong Kong markets. Experts pointed out that the policy easing, domestic demand rebound and external environment improvement form a “confidence repair triangle”, promoting the capital game into a new stage.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Last week, the State Council Information Office held a press conference. During the event, significant measures were announced, including RRR (Reserve Requirements Ratio)and interest ratecuts, which attracted widespread market attention. Recently, the rebounding consumption during the May Day holiday in mainland China, combined with the potential easing of China-U.S. trade tensions, has created multiple favorable factors. These developments suggest that both the mainland and Hong Kong markets are gradually emerging from gloom and shifting towards optimism. However, what is the actual situation? How do these various factors interact with each other? To discuss these topics, we have invited Li Daxiao, former chief economist at a brokerage firm; Guo Hanbing, postdoctoral researcher at the Chinese Academy of Social Sciences; andLYUZhihong, Partner and Head of Capital Markets Services, South China (Hong Kong) Listing Business, Deloitte China, to help us interpret market trends. Welcome, everyone.
At the press conference held last Wednesday, officials introduced a "comprehensive package of financial policies to support market stability and expectations." Some experts told DDN reporters that the simultaneous announcement of reserve requirement and interest rate cuts exceeded expectations and is likely to significantly boost market confidence. First, I'd like to ask Ms. Guo: How do the reserve requirement and interest rate cuts relate to the recovery in consumption and the easing of China-U.S. trade tensions? What is the interaction among these three favorable factors?
【Guo】In recent times, the recovery in consumption, tariff relief, and policy easing have created an effective synergy. We can liken these three factors to a "confidence restoration triangle." This triangle works in concert: the recovery in consumption strengthens the economic fundamentals, tariff relief improves the external environment, and policy easing injects liquidity into the market, collectively enhancing risk appetite. Strong consumption indicates that the economy has endogenous momentum, making investors feel they can profit domestically. Tariff relief lowers external risks and enhances foreign investors' confidence in allocating assets in China. Policy easing provides tangible resources for market investments. For example, the recent continuous net inflow of southbound funds, and increased buying in Hong Kong stocks are results of this effective resonance among the three factors.
【Anchor】Now, Mr. Li, what is your view on the synergistic effects of these factors?
【Li】We have seen significant growth in travel during the May Day holiday, which is a strong indicator of consumer recovery. Additionally, data from the scrappage scheme and the impact of policy measures show positive momentum. The recent cuts in reserve requirements and interest rates, announced by the central bank on May 7, have also boosted market confidence. Should liquidity issues arise, they could further uplift market sentiment. The latest updates from the Ministry of Commerce also contribute to market confidence. Overall, we are pursuing a dual-circulation development paradigm that encourages domestic demand while stabilizing international consumption, foreign investment, and trade simultaneously.
【Anchor】Regarding the China-U.S. trade negotiations, last week the Ministry of Commerce stated that China agreed to engage with the U.S. on tariff issues, suggesting a potential easing of trade tensions. Ms. Guo, do you believe this pause in trade friction will alter the trend of global industrial chain restructuring?
【Guo】Overall, if progress is made in the China-U.S. trade negotiations, the current situation characterized by "decoupling pains" may shift towards a limited easing. However, the structural contradictions between China and the U.S., such as technological competition and industrial policies, will continue to dominate long-term interactions.
From an industrial chain perspective, the U.S. currently imposes tariffs of up to 145% on Chinese goods. If these tariffs are reduced, sectors like machinery, textiles, and new energy vehicles will see a drop in export costs and an improvement in product price competitiveness. However, high-end manufacturing sectors, such as semiconductor equipment and AI specific chips, will likely continue to face U.S. technological restrictions, a trend that is difficult to reverse in the short term.
In terms of capital flows, expectations of progress in trade negotiations will enhance market confidence, as evidenced by the recent performance of the Hong Kong stock market, where the Hang Seng Index has shown significant gains. This reflects international capital's ongoing optimism towards Chinese assets. If trade negotiations progress, the current tensions will ease, greatly improving market sentiment, which could shift corporate investment and consumer spending away from an overly conservative stance. There will be opportunities for expanding production, increasing R&D investment, and encouraging active consumption.
In summary, if progress is made in trade negotiations, the market will still need to pay attention to several key factors, including specific lists for tariff exclusion procedures, the implementation progress of various technology cooperation agreements, and fluctuations in the RMB exchange rate as indicators of sentiment and tangible outcomes.
【Anchor】We've noticed recent changes in the Hong Kong market, such as the strengthening of the Hong Kong dollar and robust demand. Since May, the HKMA has injected a total of HKD 129.4 billion to stabilize the exchange rate.HKMA Chief Executive Eddie Yue previously explained that the strong demand for the Hong Kong dollar is due to increased stock investment, short-covering activities, and large IPOs coming to Hong Kong. How do you assess the scale of these three demand factors? Do you expect the HKMA's liquidity injections to increase further in the future?
【LYU】Tocontextualize this issue, historical trading volumes in the first quarter over the past 25 years, which has significantly increased, indicate a clear rise in stock investment-related demand. First, there has been a notable increase in liquidity in the market. Second, regarding the IPO market, as of May 5, we saw 46 A-share companies planning to list in Hong Kong. In the future, we expect even more A-share companies to come to Hong Kong for large-scale fundraising activities. This includes major retail companies that have already been listed on the exchange, such as CATL and other large mainland enterprises like Hengrui Pharmaceuticals. These companies are likely to choose Hong Kong to expand their overseas operations and enhance their international brand image, attracting more foreign capital into the Hong Kong market. All these factors are positive and will strengthen the Hong Kong stock market as trading activity increases. We believe more leading mainland enterprises will also list in Hong Kong, which will contribute to the strengthening of the Hong Kong market.
【Anchor】Mr. Li, what are your views on this?
【Li】The Hong Kong dollar's strength stems from capital outflows from the U.S., with funds shifting to Europe, Japan, and Hong Kong. There is also increased investment-related demand. Previously, foreign capital was shorting Chinese assets, claiming China was "uninvestable", and on the verge of collapse. However, this year, there has been a complete turnaround, with foreign capital buying into Chinese assets. This has increased demand for HKD. Additionally, uncertainties in the U.S. stock market and Chinese concept stocks' return will further boost demand for the Hong Kong dollar, reinforcing Hong Kong's status as an international financial center.
【Anchor】The topic of large enterprises conducting IPOs in Hong Kong has garnered widespread attention recently. The Hong Kong Stock Exchange revealed that since the second quarter, there are 120 new stock listing applications being processed, and about 30 companies plan to conduct A+H dual primary listings in Hong Kong. Compared to the past, what new features do you see in the current IPO boom?
【Li】In terms of large IPOs, besides the return of Chinese concept stocks, the trend of A+H listings from mainland stocks has also become prominent. We see many large enterprises opting for IPOs in Hong Kong. This trend is likely to continue because financing in the A-share market is currently constrained. As a result, the enthusiasm for listing on the Hong Kong stock market will likely keep increasing. A new feature is the listing of existing shares, which includes the return of Chinese concept stocks and new A+H issuances, which is quite noticeable.
【Anchor】Mr. LYU, what are your thoughts on this?
【LYU】To address this issue, we can refer back to the measures announced last year by the China Securities Regulatory Commission (CSRC) to promote cooperation in the Hong Kong capital market. These measures have encouraged many leading companies to list in Hong Kong. Additionally, last October, the Hong Kong Securities and Futures Commission and the Stock Exchange announced ways to optimize the approval timeline for listing applications. This has expedited the approval process for qualified A-share companies looking to list in Hong Kong. Given these clear commitments and timelines, we can expect to see more A-share companies, particularly leading firms in high-value sectors, and even some U.S.-listed Chinese concept stocks returning to Hong Kong for listings. Given the recent geopolitical tensions, I believe this will attract even more Chinese concept stocks listed in the U.S. to consider Hong Kong.
【Anchor】On May 3, according to domestic media Caixin, Ant Group plans to separately list its overseas segment, Ant International, in Hong Kong and is currently in discussions with regulators. Mr. Li, if Ant successfully lists in Hong Kong, what impact will it have on the market?
【Li】Ant's listing has been in the works for a long time. Alibaba's successful listing in Hong Kong significantly strengthened the appeal of Hong Kong stocks. Ant's entry would further enhance the attractiveness of the Hong Kong stock market. The biggest draw for global funds is the presence of highly competitive, fast-growing companies. Over the years, the Hong Kong market has evolved from primarily local stocks to include A-shares and the A+H model, significantly strengthening the market's overall profile. Additionally, with the return of Chinese concept stocks this year, the Hong Kong market is poised to benefit from a combination of local stocks, mainland enterprises, and returning Chinese concept stocks, creating a robust environment for growth.
【Anchor】Mr. LYU, what is your view on this?
【LYU】Back in 2020, we remember that Ant Group had also planned to go public and received a warm welcome from both retail and institutional investors. Should Ant proceed with its listing in Hong Kong, it would certainly have a stimulating effect on the market, particularly for this sector. It would also encourage related new economies and fintech companies to actively consider their development within this ecosystem.
【Anchor】Mr. Li, in the context of the ongoing IPO boom, which industries do you anticipate might become hotspots for IPOs? For instance, will we see more billion-dollar IPOs in sectors like new energy or biomedicine? Yes, Ms. Guo, which industries does she believe will become new hot spots?
【Guo】The trend for IPOs in Hong Kong has indeed changed. In simple terms, the focus is shifting from earlier internet concepts to technology, consumption, and green concepts. These three areas will be the new hot spots for future Hong Kong IPOs, and the market is re-evaluating the value of China's new economy. In the technology sector, the new feature is the rise of hard technology or core technology. Currently, sectors like semiconductors, AI chips, and quantum computing, which previously relied on heavy investment, are now the main players in IPOs. The Hong Kong Stock Exchange has also opened a Chapter 18C listing regime. The pricing from international capital for these companies is very favorable, indicating strong confidence in China's technological breakthroughs. Additionally, concepts like the green economy and new consumption are also very popular. In the green economy, the renewable energy sector is particularly prominent, with leaders in photovoltaics and energy storage lining up for IPOs. The Hong Kong Stock Exchange has created a fast-track listing mechanism, reducing the listing cycle to about six months. It's estimated that this year, IPOs related to the green economy could raise HKD 50 billion. The consumption sector is also very interesting. Previously, we mainly saw internet consumption driven by online traffic. Now, companies like Mixue Ice Cream & Tea and Pop Mart, which have strong supply chain concepts, are emerging as unique IPO candidates. These types of companies are very popular.
【Anchor】Alright. Mr. LYU, what are your predictions?
【LYU】We see potential explosion points, particularly for technology companies, especially those in AI. In addition, there will be opportunities for healthcare and pharmaceutical companies. We also anticipate growth from retail brand companies, as many of them are developing cross-sector collaborations with tech companies. These areas are worth monitoring as potential future growth points.
【Anchor】Under multiple favorable conditions, market confidence and capital speculation are entering a new phase. 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.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
Related News:
DDN Business Insider | Traditional finance embracing on-chain trend
Comment