From a macro, fundamental, and valuation perspective, which industries in the Hong Kong stock market are worth paying attention to?

Source: Guohai Securities Party Chongyu

Focus on the rebound of the information technology sector under the slowdown of the Fed's interest rate hike

At present, the valuation of the Hong Kong stock information technology sector has a certain safety margin. The Heng Seng Information Technology Industry Index PETTM is currently at about the 7th percentile of the past 5 years. In addition, technological innovations such as AIGC may bring long-term profit growth points to Internet companies.

In the short term, it is recommended to pay attention to the Fed's interest rate meeting on May 2-3. If the Fed stops raising interest rates in the future, it may be conducive to the rebound of the Hong Kong stock information technology sector.

Focus on investment opportunities under the revaluation of Hong Kong state-owned enterprises

After the chairman of the China Securities Regulatory Commission, Yi Huiman, proposed "exploring the establishment of a valuation system with Chinese characteristics" in November last year, the valuation of Hong Kong state-owned enterprises has risen, but the current valuation of Hong Kong state-owned enterprises is still low.

As of 2023/4/24, the Hong Kong Central Enterprise Index PETTM is only 6.02, still lower than the average of the past 5 years. With the revaluation of central enterprises, undervalued Hong Kong central enterprises are expected to further increase their valuations in the future.

Focus on the transportation sector such as aviation and oil transportation with good fundamentals

Aviation: According to the "May Day" tourism market outlook data released by Trip.com, domestic travel orders have been flat with 2019, a year-on-year increase of more than 7 times. Against the background of changes in epidemic policies, coupled with important periods such as May Day and summer transportation, the aviation industry may usher in a logic of rising volume and price, and it is recommended to pay attention to investment opportunities in Hong Kong aviation stocks.

Oil transportation: In the future, due to supply constraints and demand recovery, freight rates are expected to continue to rise. On the one hand, in the years after 2023, there is almost no new supply of ultra-large VLCC oil tankers. On the other hand, with the gradual recovery of the Chinese economy, the demand for oil transportation may continue to increase in the future. Although oil transportation is currently in the off-season, freight rates are still relatively high. In the future, with the recovery of the domestic economy, freight rates may further rise.

Focus on the financial sector under economic recovery

At present, the overall valuation of the Hong Kong stock financial sector is still relatively low, and it still has greater cost-effectiveness compared with A shares. As of 2023/4/24, the PE and PB of the Hang Seng financial industry were 6.17 times and 0.55 times, respectively, which were close to the average minus one standard deviation level of the past 5 years. The banking business is expected to improve with the economic recovery, and the Q1 performance of securities firms and insurance companies is expected to increase due to the low base effect.

Focus on innovative drugs and other pharmaceutical sectors

In the future, with the slowdown or even cessation of interest rate hikes by the Federal Reserve, the Hong Kong stock pharmaceutical sector, especially the innovative drug sector sensitive to interest rates, is expected to see a valuation increase. If there is a second outbreak of COVID-19 in the future, it is expected to drive demand for vaccines, epidemic prevention drugs and other products to rebound. In addition, against the backdrop of "Zhongtegu", the valuation of Hong Kong state-owned pharmaceutical companies is expected to be reshaped.

Focus on the bottom layout opportunities of the semiconductor sector cycle

Currently, global semiconductor sales are still in a downward cycle. As of April 25, 2023, the P/E ratios of Hong Kong's semiconductor and semiconductor production equipment PETTM were 7.42, and the percentile ranks of P/E ratios in the past 3 years and 5 years were 0.14% and 0.08%, respectively. The valuation of Hong Kong's semiconductor sector is still at the bottom. As the leading indicator, the Philadelphia Semiconductor Index bottomed out in October 2022 and is currently in a rebound phase. In the future, semiconductor sales may also bottom out and rebound, but attention still needs to be paid to the impact of the global economic slowdown.

Focus on the consumption sector with fundamental recovery

In March, the year-on-year growth rate of social and retail data was 10.6%, higher than the expected 7.2%, and the cumulative year-on-year growth rate was 5.8%. Future consumption data is expected to continue to improve. This year's "May Day" is the first May Day holiday since the optimization of epidemic prevention and control. Travel data is expected to improve significantly. Currently, the overall valuation of Hong Kong's consumption sector is still relatively high. It is recommended to focus on individual stocks in industries such as online travel, catering, hotels, tourism, aviation, and gambling that exceed performance expectations in the future.