After a bleak 2022, Hong Kong stocks are expected to rebound strongly this year.

Source: Wang Yihan, CITIC Securities

The disclosure of the 2022 annual reports of Hong Kong-listed companies has basically ended. After adjustment, the financial reports of 492 listed companies in the Hang Seng Composite Index have been compiled. "In 2022, the net profit of the Hang Seng Index decreased by 1.8% year-on-year, but revenue still increased by 5.1%."

"Of course, Hong Kong stocks performed very poorly last year, with the Hang Seng Index falling more than 15% and the Hang Seng TECH Index falling more than 27%."

"CITIC Securities predicts that the net profit and revenue growth rates of the Hang Seng Index in 2023 will reach 20.7% and 8.2%, respectively."

Performance by Industry in 2022

Affected by the international macro environment, traditional economic sectors such as energy, materials, and industry continued their growth momentum in 2021 and performed well in 2022, with profit growth rates of 55.9%, 20.7%, and 17.2%, respectively.

The net profit of the healthcare, real estate, and optional consumer sectors in 2022 decreased significantly year-on-year, with healthcare and real estate companies' profits declining by 23% and 48%, respectively, while the optional consumer sector as a whole fell into losses.

There were a total of 456 stocks in the Hang Seng Index that had Bloomberg consensus expectations before the 2022 annual report (or equivalent calendar year financial report) was disclosed. "Compared with expectations, the overall profit was 7.4% lower than expected."

Performance forecasts for various sectors have generally been revised upwards

On a comparable basis, "the forecast net profit and revenue growth rates of the Hang Seng Index in 2023 are expected to reach 20.7% and 8.2%, respectively, which are adjusted by 7.2/-0.2 percentage points compared with the beginning of the year." However, the main reason for the upward revision of profit growth expectations is that overall profits in 2022 were lower than expected.

"The profit growth rate forecasts for the pharmaceutical and biotechnology as well as real estate sectors have been significantly revised upwards since the beginning of the year, while the full-year profit growth rate forecasts for banks, retail, automobiles and parts, semiconductors, and production equipment have all been revised downwards to varying degrees."

Looking at the annual report season in the past month, the 2023 performance expectations of industries benefiting from the recovery of residents' travel and consumption have been revised upwards to varying degrees.

• As the domestic economy gradually returns to normal, stabilizing the economy and promoting development has become the main theme of local governments' work this year, and the consumer industry is expected to benefit;
• The risk of real estate has slowed down, and the continuous introduction of favorable policies will help the industry gradually improve;
• Infrastructure projects continue to land, and relevant cyclical industries are expected to promote stable recovery.