How to understand the rebound in Hong Kong stocks this week? It may not necessarily be the bottom, the big market trend has not yet arrived!

Throughout August, the Hong Kong stock market experienced a correction for most of the month, only showing signs of recovery in the latter half. How should we interpret this rebound?

According to Dong Chongyu, an analyst at Dolphin Research, the Hang Seng Index experienced a correction of approximately 10.57% between August 1st and 27th.

On one hand, this is due to the rise in US Treasury yields. The US Treasury Department is expected to significantly increase the supply of US bonds in Q3, while the US economy remains fundamentally strong, providing support for bond yields.

On the other hand, the domestic economy is in a slow recovery phase, and the market expects more policies to stabilize growth. The release of domestic financial and economic data for July in the first half of August, as well as the intensive disclosure of semi-annual reports by A-share and Hong Kong-listed companies in the second half of August, also had a certain impact on the trend of the Hong Kong stock market.

At the same time, Hong Kong stocks, which have offshore attributes, have outperformed A-shares in the short term, indicating that Hong Kong stocks have shown some bottoming characteristics. Policies related to the Chinese capital market are also favorable for market stabilization.

However, it should be noted that, based on historical experience, a reduction in the Hong Kong stock stamp duty may not reverse the long-term trend of the market. Hong Kong stock investors pay more attention to fundamentals and the performance of listed companies, and a reduction in stamp duty reflects the government's attitude towards an active capital market.

Outlook

Previously, Dolphin Research believed that the significant rise in the Hong Kong stock market after the July Politburo meeting indicated that the policy bottom had been formed. However, a policy bottom does not necessarily represent an absolute market bottom. The current rebound level may not be the strongest of the year, and there may be opportunities for a major rebound or reversal in the fourth quarter of this year (confirmation of market bottom, strengthening of policy expectations, improvement in economic data, and other factors still need time to resonate). Therefore, we still need to wait for the major market trend after the market bottom, but this consideration does not affect the positive view on the current technical rebound.

In September, if there are unfavorable financial or economic data disclosures, technical resistance levels impeding the stock market rebound, capital seeking safety during the Mid-Autumn Festival and National Day holidays, and unexpected overseas geopolitical events, there is still a possibility of repeated bottoming. However, the positive factors are that the current Hong Kong stock market's price-earnings ratio, trading volume, and the US dollar index all indicate that Hong Kong stocks may already be in the bottoming phase.

In terms of rhythm, Dolphin Research believes that if there is a rebound in the Hong Kong stock market in September, there may still be volatility in the latter part of the month. Factors such as the lack of consensus on the market bottom and the accumulation of trapped positions above the stock index, as well as the risk aversion effect of A-share and Hong Kong stock investors during the Mid-Autumn Festival and National Day holidays, may have an impact on Hong Kong stocks. Moreover, the holidays may to some extent affect the behavior of southbound funds before and after the holidays. After the Mid-Autumn Festival in September, investors may become more risk-averse, which could lead to A-share investors selling stocks to avoid uncertainties during the long holiday period. Even though the Hong Kong stock market does not have a long National Day holiday like the A-share market, a decline in A-shares could have a negative impact on Hong Kong stocks. Moreover, if the Hong Kong Stock Connect is closed for a longer period due to the A-share holiday, it may directly affect the behavior of southbound funds to some extent. The short-term market trend after the National Day holiday still depends on the news during the holiday.

Furthermore, as time goes on, the market bottom may be continuously confirmed in September and October. If the opportunities at the low levels continue to be accompanied by strengthened policy expectations or improved economic data, it will be more favorable for a significant rebound or reversal in Hong Kong stocks in the fourth quarter of this year.

On one hand, Hong Kong stocks may have greater elasticity due to relatively limited liquidity. If the absolute market bottom is low and there are opportunities for a rebound, it may not necessarily require a significant change in the economic situation to drive an upward movement. On the other hand, it is also necessary to guard against the risk of a weakening U.S. economy towards the end of the year, which could lead to a decline in U.S. stocks or geopolitical factors affecting risk appetite in Hong Kong stocks at the end of the year. At that time, it will be important to closely monitor the sustainability of the market.