Technical Analysis | Scissors Gap in Chinese and American Technology Stocks! What does it mean? Cost-effectiveness in Hong Kong stocks!

Looking at the global equity markets from three key indicators, Wang Yi, Su Yanni, and Hou Jie, analysts at Huatai Securities, judge that the current valuation of Hong Kong stocks may have entered the "hitting zone"!

The Scissors Gap between Chinese and American Technology Stocks Indicates the Cost-effectiveness of Hong Kong Stocks

Represented by the Hang Seng Technology Index and the NASDAQ Composite Index, the trends of Chinese and American technology stocks were similar before 2021, but the "position difference" between the two has continued to widen since 2021.

In 2021, with the tightening of regulations on the platform economy and the increasing risks of delisting of Chinese concept stocks, Hang Seng Technology's forecasted EPS and forecasted PE have been "double killed" compared to the NASDAQ Composite Index.

However, after the domestic policy support for the platform economy last year, the internet gaming and e-commerce sectors in the Hong Kong stock market rebounded, and Hang Seng Technology's forecasted EPS relative to the NASDAQ Composite Index reversed at the end of February this year. However, the downward movement of Hang Seng Technology's forecasted PE relative to the NASDAQ Composite Index was greater, resulting in continued underperformance of the stock price. The risk premium is the main factor dragging down the performance of Hang Seng Technology.

The market's difference in risk preference for Chinese and American technology stocks may stem from three points:

1) External environment: The characteristics of "Chinese assets + overseas capital" in the Hong Kong stock market make it more sensitive to global macro volatility. Geopolitical factors have a significant impact on the risk premium of Hang Seng Technology. Since 2015, the relative price of the NASDAQ Composite Index to Hang Seng Technology has basically moved in the same direction as the economic and political uncertainty index.

2) Industry cycle: The strong performance of the NASDAQ Composite Index this year is driven by the AI industry cycle. Recently, the leading stocks reaching new highs (excluding finance and utilities) are mainly in the electronics and software industries, which have stronger industry logic and AI competitiveness compared to the internet sector, which is relatively weighted in Hang Seng Technology.

3) Platform policies.

Currently, it seems that the recent geopolitical warming, cooling of the AI phase, and the completion of the phase of ANT GROUP's rectification may indicate a convergence of the gap between Chinese and American technology stocks.

Hong Kong stocks also show a certain cost-effectiveness compared to major emerging market equity markets

Compared to the equity markets of major emerging market countries worldwide, Hong Kong stocks also demonstrate a certain cost-effectiveness. According to MSCI China and MSCI Emerging Markets, which depict the relative performance of China versus non-China emerging markets, Chinese assets have recently underperformed other emerging market countries. The current MSCI China/MSCI Emerging Markets ratio is around the 11.5th percentile since 2013. Using PB-ROE to evaluate the valuation-profitability match in major global equity markets, Hong Kong stocks, led by the Hang Seng Index, are trading at a relatively high discount.

Focusing on emerging markets, only the Brazilian and Russian markets have a greater discount than Hong Kong stocks, indicating that Hong Kong stocks currently offer a higher cost-effectiveness for global allocation of funds (such as foreign capital).

AH Relative Point Model Indicates High Cost-Effectiveness of Hong Kong Stocks

From the current relative cost-effectiveness of A-shares and H-shares, the Hang Seng Index also demonstrates a certain cost-effectiveness.

In terms of AH relative points, the measurement is based on the closing price of the Wind Full A Index divided by the closing price of the Hang Seng Index, multiplied by 100, with the inclusion of the US dollar index, China's nominal GDP, and the EPUI index. The data from January 2005 to the present is used for fitting, and the model's goodness of fit is approximately 53%, indicating a relatively high explanatory power over a long period of time.

By observing the actual AH relative index points and the model's predicted results, the current actual value is higher than the predicted value, which may indicate that Hong Kong stocks are currently relatively undervalued compared to A-shares. The reason for this could be the correction of previous expectations by foreign capital regarding overseas liquidity and China's recovery slope. Looking ahead, considering the potential improvement in both factors, the current gap may point to investment opportunities in Hong Kong stocks.