Guotai Junan Securities: The valuation framework based on China Bond rates is becoming evident, and the upward space for Hong Kong stocks has increased this year

According to the Zhitong Finance APP, Guosen Securities released a research report stating that due to the Federal Reserve's attitude becoming more dovish in practice, this helps improve liquidity from overseas. Additionally, the Hong Kong stock market saw further increases in August and September against the backdrop of earnings downgrades, which is unusual and precisely indicates that the risk premium framework based on Chinese bond rates is beginning to systematically take effect, opening up space for further upward movement in Hong Kong stocks this year. The firm has raised its target price for Hong Kong stocks in 2025 to 29,000 points based on a weighted risk premium calculation.

Guosen Securities' main points are as follows:

United States: The September interest rate meeting marks the beginning of a new round of monetary easing.

In September, the Federal Reserve paradoxically completed a rate cut while raising the economic growth forecast for 2026 and lowering the unemployment rate. The opinions among Fed members are very divided, but most members insist that there should be two more rate cuts this year. This proves that the Fed's neutrality has begun to erode, and the traditional paradigm of "inflation not peaking, Fed not cutting rates" is no longer applicable.

In light of this, the firm believes that a more positive perspective should be taken regarding global liquidity. The current situation in the U.S. is characterized by macro data under pressure but not too bad, and corporate profits are strong due to AI, which is conducive to the continued rise of U.S. stocks, the continued decline of the dollar, and the upward movement of emerging market stocks.

A-shares: Insights on the A-share risk premium model.

The firm calculated the upper range of A-shares based on the risk premium of the SSE Index, arriving at levels of 4,900 points and 5,300 points for the SSE Index in 2025 and 2026. This is significantly higher than the 3,650-4,000 points calculated using historical price-to-earnings ratios. This difference is primarily due to the significant decline in government bond rates over the past two years.

It is worth mentioning that the earnings downgrades in July and August coincided with an increase in the index, indicating that A-shares are currently driven mainly by sentiment. Future attention should be paid to changes in trading volume; a healthy upward trend is best characterized by "increasing volume - consolidating with low volume - then increasing volume again," with details available in the turnover rate discussion in the August report.

Hong Kong stocks: The influence of Chinese pricing is becoming increasingly evident.

In September, Hong Kong stocks significantly outperformed A-shares, with the Hang Seng Index rising by 7.1%, the Hang Seng Tech Index rising by 13.9%, and the Hang Seng Stock Connect rising by 7.8%. Among key indices, the internet and Hang Seng Tech significantly outperformed other indices. The Hang Seng Automotive, Stock Connect Consumer, Hang Seng China Enterprises, and Hang Seng Healthcare all saw increases of 5-10%. The laggards were the Hang Seng Consumer, High Dividend, and Banking sectors.

Due to the Federal Reserve's attitude becoming more dovish in practice, this helps improve liquidity from overseas. Additionally, the firm noted that the Hong Kong stock market saw further increases in August and September against the backdrop of earnings downgrades, which is unusual and precisely indicates that the risk premium framework based on Chinese bond rates is beginning to systematically take effect, opening up space for further upward movement in Hong Kong stocks this year. The firm has raised its target price for Hong Kong stocks in 2025 to 29,000 points. Sector-wise:

1. AI direction: AI is currently the main theme leading the global capital market, benefiting large internet companies and upstream players in the domestic computing power industry chain;

2. Innovative drugs: The performance of innovative pharmaceuticals continues to be revised upward, and it is worth holding on to. Once new BD projects are released in the future, there will still be room for the sector;

3. Raw materials: "Anti-involution" remains the main theme throughout the second half of the year, with many companies showing impressive performance. It is judged that overseas inflation will continue to rise in the third and fourth quarters, and this sector will continue to benefit;

4. Non-bank: Insurance and brokerage firms benefit from the upward trend of A-shares, and it is expected that the third quarter report will show good performance. After a period of adjustment, it is currently a good opportunity for layout;

5. In the consumer sector, due to performance differentiation, tobacco, packaged water, and textiles and apparel are worth paying attention to.

Risk warning: Uncertainty in geopolitical situations, uncertainty in U.S. tariff policies, uncertainty in the extent of overseas interest rate cuts, and uncertainty in the competitive landscape of certain industries