Hong Kong stock market's bottom support line has once again withstood the test! Why is the market so resilient?

After experiencing a slight correction in mid-August, the Hong Kong stock market finally showed signs of recovery last week, and the momentum continues this week.

Analysts Liu Gang and Zhang Weihan from China International Capital Corporation (CICC) also observed that, amidst the pressure on A-shares and the continuous outflow of overseas funds, the Hong Kong stock market unexpectedly demonstrated greater resilience last week. Considering its offshore market nature, such performance is indeed uncommon.

However, CICC is not surprised by this, as the bank has repeatedly pointed out that the Hang Seng Index has a downside protection around 18,000 points, especially when a series of bottoming signs appeared in the market last week, such as low valuation levels and a high short-selling turnover ratio.

The resilience and bottom support line demonstrated by the Hong Kong stock market have been tested multiple times this year. CICC believes that this resilience mainly comes from:

1) Absolute low levels in terms of valuation, allocation ratio, and investor sentiment;

2) More importantly, the continuous introduction of policies still plays a stabilizing role.

Nevertheless, investors should not have too high expectations for upward potential solely based on the market's resilience.

The Hong Kong stock market has experienced significant volatility in recent times, mainly due to the continuous anticipation of policy support and the actual "tug of war" that has not been fully realized. Compared to the market's expectation of a comprehensive and transparent policy package, it is more likely that policies will be implemented in a "gradual and progressive" manner, following the trend.

CICC would like to reiterate that in order to break the current deadlock, decisive and targeted policy responses are needed (if a short-term interest rate cut is not an option, further leveraging the real estate sector with the central government's support remains a major lever). On the external front, Federal Reserve Chairman Powell's neutral remarks have dispelled market concerns about neutral interest rates.

In summary, CICC reaffirms its previous view that the market has a "bottom" and a "ceiling," and it is still necessary to introduce more stimulating policies. In the current environment, the dumbbell structure allocation strategy remains effective.

Stable cash flow sectors (with a high dividend ratio, such as telecommunications, utilities, and energy) and expected cash flow sectors (sensitive to economic growth recovery or policy support, such as automobiles, durable consumer goods, technology, and some internet-related sectors) may still offer more certainty. At the same time, as the peak period for the release of mid-year performance in 2023 approaches, corporate profitability will also become the focus of market attention.