Understanding the Market | Has the Hong Kong Stock Market Reached a Turning Point?

Last week, the unexpected reserve requirement ratio cut by the central bank led to a significant rebound in the market. In fact, CICC had already pointed out last week that some technical indicators such as valuation, risk premium, and investor sentiment had reached or even exceeded the extreme levels of previous market bottoms. Therefore, the market obtained some support at this level, and it is not surprising to see a rebound under positive catalysts.

However, this rebound has also sparked discussions about whether the current situation is a turning point in the market. The question is, are the current catalysts sufficient? If not, what can truly lead to a trend reversal instead of just a temporary rebound?

CICC tends to believe that the current market is still in the rebound stage brought about by emotional recovery. The relatively loose overseas environment, lower valuations, and domestic policy support make it not difficult for the market to experience a rebound similar to the early 2019 or the end of 2022.

Whether it is the rebound in early 2019 (when the Federal Reserve hinted at the end of rate hikes and the Chinese central bank cut reserve requirements) or the rebound at the end of 2022 (when the US core CPI showed a turning point and China optimized its epidemic prevention and control policies), both can be achieved through the relatively loose overseas environment, lower valuations, and domestic policy support. There is no fundamental difference. However, a true trend reversal requires higher thresholds and requirements.

A true trend reversal still requires more targeted policies (especially large-scale fiscal support) to address the credit contraction in the private sector. And regardless of the form of the policies, the strength needs to be strong enough to achieve the goals.

Externally, the resilience of the US economy still brings uncertainty to the path of interest rate cuts by the Federal Reserve, which may become a potential source of market volatility.

In terms of allocation, the recent unexpected reserve requirement ratio cut by the Chinese central bank and subsequent further interest rate cuts can drive the rebound and recovery driven by liquidity. At this time, technology and small-cap growth stocks are more beneficial. If more fiscal stimulus policies are implemented, there may be greater upside potential for cyclical and core assets.

However, if neither of the above two aspects is realized, the high dividend and "dumbbell" allocation strategy recommended by CICC since last year is still a good investment strategy and is expected to continue to outperform.

In addition, it should be noted that the State-owned Assets Supervision and Administration Commission stated last week that it will further study the inclusion of market value management in the performance evaluation system for central enterprise leaders. CICC suggests that investors continue to pay attention to central state-owned enterprises with high dividend capabilities and potential.