Hong Kong stock market signal of rising? Short-term still looking at high dividends + "special estimate"
The current rise of the Hong Kong dollar may have limited impact on Hong Kong stocks, and more favorable signals are needed. It may have a greater impact on local credit-related assets in Hong Kong. If the logic of "rising in the east and falling in the west" is repeated, there is still a bullish opportunity for Hong Kong stocks in the second quarter.
Hong Kong Dollar Exchange Rate Strengthens!
On May 11, 2023, the overnight Hong Kong Interbank Offered Rate (HIBOR) rose by 36.8 basis points to 4.81%, reaching the highest level since 2007.
The strengthening of the Hong Kong dollar and HIBOR is mainly due to the intervention of the Hong Kong Monetary Authority to cope with overseas liquidity tensions and the weak guarantee situation of the Hong Kong dollar. In addition, Hong Kong banks have recently raised their preferential loan interest rates and tightened liquidity, which is not closely related to domestic policies and economic expectations, and does not mean that foreign capital has begun to increase its purchase of Chinese assets.
In addition, the sharp rise in the Hong Kong dollar's interest rate may be due to large transactions in the short term. As the semi-annual settlement approaches and Hong Kong stocks are about to enter the peak period of dividend payment, it is expected that the market's short-term demand for the Hong Kong dollar will increase.
What is the impact on Hong Kong stocks?
From a marginal perspective, the strengthening/weakening of the Hong Kong dollar exchange rate is neither a sufficient nor a necessary condition for the rise/fall of Hong Kong stocks.
The current appreciation of the Hong Kong dollar has limited impact on Hong Kong stocks, and more favorable signals are needed.
When the earnings expectations of Hong Kong stocks are strong, they are less affected by exchange rates. When earnings expectations are generally weak, the Hong Kong dollar weakens and Hong Kong stocks perform poorly.
The recent appreciation of the Hong Kong dollar is equivalent to Hong Kong local financial institutions lagging behind the tightening actions of the Federal Reserve, rather than the unexpected decline of US inflation or the large-scale purchase of Chinese assets by foreign capital.
The current appreciation of the Hong Kong dollar has no clear direction on the impact of Hong Kong stocks, and may have a greater impact on assets related to local credit in Hong Kong, slightly reducing the attractiveness of high dividend stocks.
How to view Hong Kong stocks in the short term?
It is expected that the short-term investment theme of "China Special Estimate" + high dividend will continue to perform, and the mid-term layout recommends continuing to focus on flexible varieties:
In the short term, in order to cope with uncertainties from domestic and foreign sources before the signal of domestic policy escalation and the end of the Federal Reserve's interest rate hike, it is recommended to focus on central state-owned enterprises related to high dividends and "China Special Estimate".
When Hong Kong stocks perform poorly or the market is more volatile, value stocks usually perform better. At the same time, the market is still concerned about the reconstruction of China's characteristic valuation system in the near future, and it is recommended to focus on central state-owned enterprises with high dividends, low valuations, less capital expenditures, and the potential to improve ROE in the future. According to the mid-term analysis, the current position of Hong Kong stocks is in the historical bottom area. If the logic of "rising in the east and falling in the west" is repeated, there is still a good opportunity for Hong Kong stocks to go long in the second quarter.
For mid-term layout, it is recommended to continue to focus on resilient varieties, such as Hang Seng Technology, innovative drugs, semiconductors, and traditional characteristic consumer industries.