Foreign capital and southbound funds are coming! Will Hong Kong stocks take off in May?

Source: Wang Yihan, CITIC Securities

Looking ahead to May, the fundamental advantages of Hong Kong stocks are still significant, and the "China Special Estimate" theme may continue to drive southbound funds to flow in; and the end of May is also the quarterly adjustment point for MSCI, and foreign capital is expected to return to Hong Kong stocks.

May Hong Kong stocks are expected to welcome incremental funds, focusing on four major themes

After the internal and external disturbances in mid-to-late April were digested, the fundamental advantages of Hong Kong stocks are still significant. We believe that the "China Special Estimate" theme will continue to drive the trend of southbound funds flowing in since February.

And the end of May is also the quarterly adjustment point for MSCI. Considering that Hong Kong stocks have relatively underperformed other major emerging markets recently, and after the end of the Fed's interest rate hike, foreign capital is expected to return to Hong Kong stocks from May. We recommend focusing on the following four major themes:

1. Growth sectors that are sensitive to interest rates, such as the Internet, innovative drugs, and new energy vehicles, are more likely to benefit from the continuous inflow of foreign capital.

2. The travel industry chain that benefits from the arrival of holidays and peak travel seasons, especially the aviation stocks whose industry fundamentals are expected to continue to improve;

3. The completion of real estate has significantly accelerated, which is good for the real estate cycle, especially home appliance stocks in the background of the coming summer;

4. Under the "China Special Estimate" theme, the main line of valuation increase brought about by the reform of central enterprises is expected to run through the whole year.

From the perspective of changes in southbound positions, sector rotation, valuation levels and AH premium rates, performance growth rates, and changes in the rise and fall since the beginning of the year, we have selected 20 companies related to the "China Special Estimate" theme for investors to refer to.

May investment strategy combination

Using the Hang Seng Composite Index as the stock selection pool, combined with top-down overseas Chinese stock strategy views and industry analyst views from CITIC Securities research department, a Hong Kong stock allocation combination (11 stocks) is formed, including:

China Resources Beer, China Southern Airlines, China Pacific Insurance, Hong Kong Stock Exchange, BEKE-W, Kangfang Bio, BYD Co., Meituan-W, Tencent, Kingdee INT'L, Hisense HA.