"Nikkei vs. Hong Kong Stock Exchange" seesaw, HSBC: this time choose Hong Kong stocks!

Recently, the Hong Kong stock market has launched a strong rebound, with the investment attractiveness of the Chinese market increasing. In contrast, despite the weakening of the Japanese yen, the performance of the Japanese stock market is gradually weakening.

In a report on Tuesday, HSBC pointed out that the improvement in sentiment in the Chinese market, along with lower valuations and favorable fund positions, make the risk/return ratio more attractive than that of Japanese stocks.

HSBC further stated:

Corporate profit resilience and supportive policies are boosting sentiment in the Chinese market. With the inflow of foreign and domestic funds, signs of recovery in the real estate industry, low valuations, policy support, and no major negative news, will all enhance the attractiveness of the Chinese market. At the same time, as the Fed's rate hike cycle gradually ends and shifts towards easing, the Chinese stock market may outperform Japan in the future.

In comparison, in terms of fund positions, HSBC pointed out:

Data shows that although overall fund holdings in Japan are still slightly underweight, they are higher compared to historical levels. Exposure to China is gradually increasing, with favorable factors such as long-term undervaluation, positive economic and market news. It is expected that the Chinese stock market will continue to be favored by funds in the short term, and the improving macro environment may lead to a shift of funds from Japan to China.

In terms of corporate buybacks and valuations, HSBC pointed out:

Corporate reform is underway in Japan, with stock buybacks and dividend payments at historical highs. Chinese companies also have significant room (and generous cash levels) to increase shareholder returns.

Japanese valuations are in line with historical averages, while China's long-term undervaluation makes the risk-return more attractive. Looking ahead, this trend may reverse as Japan's profit growth has been stronger than China's for a decade, driving overall market returns.

Looking ahead to the future performance of Japanese stocks, HSBC believes that corporate reform in Japan will continue to provide structural support to the market:

The continued weakening of the yen and high US bond yields can only partially explain the outstanding performance of the Japanese stock market in recent years. Other factors such as corporate governance and the Chinese macro environment may be more crucial. It is undeniable that the ROE (Return on Equity) levels of Japanese companies have been continuously rising over the past decade, with strong profit growth driving overall market performance. The ongoing expansion of corporate reform and share buybacks will continue to support the market.

Overall, HSBC stated that the investment attractiveness of the Chinese market is increasing, while the relative advantage of the Japanese stock market may gradually weaken. In the medium to long term, both markets still offer many opportunities, but in the short term, China may be more worthy of attention in terms of allocation