Hong Kong stock valuation repair hope: Is the short-term rebound of US stocks coming to an end?!

Last week, the US stock market fell slightly, and the rebound since March has significantly weakened; the Hang Seng Index also oscillated downward, falling nearly 2% during the week.

When will the decline in Hong Kong and US stocks end?

According to Guosen Securities analysts Wang Xueheng and Zhang Xi, the short-term rebound in US stocks may have reached its end! On the contrary, if the rebound in US stocks slows down, Hong Kong stocks are expected to attract the attention of foreign capital again, and the valuation will be repaired as the fundamentals improve.

Short-term rebound in US stocks may have reached its end

Last week, the US dollar index and the 10-year US bond yield both reached the bottom of the stage shock range and began to rebound, which means that the liquidity of the US market has reached a short-term peak.

In terms of monetary policy, the market's judgment on the results of the May FOMC meeting has gradually tilted towards a 25 basis point rate hike, and the imagination space for US stocks to benefit from improved liquidity is limited.

In terms of fundamentals, the US stock market has shown a slow downward trend in performance in recent weeks, but the relevant factors have not been fully priced in. In terms of quantitative indicators, the risk premium of the US stock market has further declined:

Currently, the risk premium of the S&P 500 is 1.9%, the lowest since 2023 is 1.6%; the risk premium of the Nasdaq 100 is 0.5%, the lowest since 2023 is 0.3%. The potential upward repair of these two indicators means that the valuations of the two US stock indexes will fall.

Last week, both the S&P 500 and the Nasdaq 100 showed signs of weakening rebound momentum. Without considering the risk of the US economy falling into substantial recession, from the perspective of short-term trading, if we assume that these two indexes will return to the direction of the 200-day moving average, they may both experience a mid-single-digit retracement.

The potential catalyst for stock price movement may be the first quarter reports of companies and US economic data for the first quarter.

The fundamentals of Hong Kong stocks have not been fully priced in

In the past month, some industries in Hong Kong have significantly improved their performance: steel +60%, social services +37%, media +34%, and commercial retail +24%. However, the stock price changes of these related sectors in the past month have not reflected the trend of performance improvement (steel -3.4%, social services -2.2%, media -6.9%, commercial retail -1.1%).

Guosen Securities believes that the main reason for the weak performance of Hong Kong stocks at present is the lack of comparative advantages.

For domestic investors, A-share generative AI concept theme investment has a safety margin and imagination space; for foreign investors, the previous rebound performance of US stocks is relatively superior.

If the A-share AI market and the rebound of US stocks slow down, then the relative attractiveness of Hong Kong stocks is expected to increase, and the valuation is expected to be repaired.