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Are you all going to "play" in the Hong Kong stock market?

Author | Market Capitalization Fund Research Department

Editor | Xiaobai

In the first half of the year, the performances of 512 funds containing "Hong Kong" were differentiated. The Hong Kong Stock State-owned Enterprises ETF (159519.SZ) took the lead with a yield of 23.9%, while the Innovative Drug ETF Shanghai-Hong Kong-Shenzhen (159622.SZ) ranked last with a loss of 28.5%, with a difference of more than 50 percentage points between the top and the bottom.

Among them, funds covering leading Hong Kong-listed Internet companies and high-dividend central state-owned enterprises performed well, with many net asset values ​​increasing by more than 10%. Some fund managers continued to increase their holdings of Hong Kong stocks in the second quarter. Hong Kong stocks, which fell for a year last year and were in "extremely cold" liquidity, have finally attracted attention from funds again this year.

As of July 22, the net inflow of northbound funds this year was only 23.1 billion, while the net purchase of southbound funds was as high as 382.1 billion, exceeding the levels of 336.3 billion and 289.5 billion in 2022 and 2023.

(Source: Choice data, charted by Market Capitalization App, data as of July 22)

Funds continue to flow in. Let’s take a look at which Hong Kong stocks fund managers have a special liking for and what they think about the market outlook?

Technology and high dividends are the focus of public funds' layout of Hong Kong stocks

As of the end of June, the top ten Hong Kong stocks heavily held by Mainland-Hong Kong Connect Funds were Tencent Holdings, China National Offshore Oil Corporation, Meituan, China Mobile and Kuaishou, etc. Among them, Tencent Holdings, Meituan, China Mobile, Xiaomi Group and other technology stocks received substantial increases in holdings by public funds in the second quarter.

Publicly offered funds began to reduce their holdings of high-dividend power stocks, China Resources Power and China Power in the second quarter. The two stocks have risen by more than 30% and 40% respectively this year.

(Source: Wind, China Fund News, Market Capitalization Wind and Cloud APP)

Judging from the changes in the number of shares held, the companies that increased their holdings by the largest margins in the second quarter include China General Nuclear Power Group, SenseTime Group, Industrial and Commercial Bank of China, China Ruyi, Everbright Environment and China Construction Bank.

Among them, SenseTime-W released the daily new 5.0 model in late April. The news stimulated its stock price to rise by 160% in 8 trading days. It seems that many public funds participated in it. In addition, the stocks that public funds increased their holdings in the second quarter are still concentrated in stocks with high dividends.

(Source: Wind, China Fund News, Market Capitalization Wind and Cloud APP)

Are high-dividend Hong Kong stocks more cost-effective?

Excluding funds with funds below 100 million and newly established funds this year, the equity funds that increased their holdings of Hong Kong stocks in the second quarter are shown in the following table. The increase in the proportion of the market value of Hong Kong stocks held by the top 20 funds to their net value was more than 20 percentage points month-on-month.

However, although they all increased their holdings in Hong Kong stocks, their performance showed mixed results. The net value of China Tai Dividend Preferred One-Year Holding Mixed Launch (014771.OF) increased by 18.5% in the first half of the year, while the net value of Huiquan Strategy Preferred Mixed A (012412.OF) fell by more than 24 percentage points in the first half of the year.

(Source: Choice data, compiled by Market Capitalization App, data as of June 30)

As of the end of June, the allocation of Hong Kong stocks by the Zhongtai Dividend Preferred One-Year Holding Mixed Fund accounted for 43.1% of the fund's net value, an increase of 22 percentage points from the previous quarter. This fund, which was established in a bear market, has performed well since its inception.

Its fund manager Jiang Cheng has been managing the fund since its establishment in March 2022. His current return rate during his tenure has reached 20%. The fund had a yield of 4.7% in 2023 and has achieved a return of 18.4% this year.

Jiang Cheng, a fund manager with over 7 years of experience, currently manages funds worth 13.5 billion yuan. He is known as the integrator of the Market Capitalization Storm research system. For specific details, you are welcome to visit the Market Capitalization Storm APP.

(Source: Research report on Market Capitalization Storm APP, which is dedicated to the registration system)

The second quarter report shows that 4 of the top 10 stocks in the China-Thailand Dividend Preferred One-Year Holding Mixed Initiate are from Hong Kong stocks. Among them, China Shenhua was reduced by 200,000 shares month-on-month, while China Railway Construction Corporation was slightly increased by 50,000 shares.

The other two new entrants to Hong Kong stocks are China Resources Land and Industrial and Commercial Bank of China, while the one that withdrew is China Railway Construction.

(Source: Research report on Market Capitalization Storm APP, which is dedicated to the registration system)

In the second quarter report, Jiang Cheng mentioned that the sectors with dividend defense attributes such as banks, utilities, and coal have obvious gains, so he switched more positions to more cost-effective Hong Kong stocks. In addition, he focused more on the banking and real estate sectors.

(Source: Second quarter report)

In addition, Taikang New Opportunities Flexible Allocation Mixed Fund (001910.OF), which also ranked first in terms of the increase in Hong Kong stocks, also performed well this year, with a net value increase of 13% in the first half of the year. Among the top ten holdings in the second quarter, the fund bought two Hong Kong stocks as the first and second largest holdings, namely China National Offshore Oil Corporation and China Shenhua.

However, this fund is relatively diversified. In the second quarter, stock holdings accounted for only 81% of the fund's net value, and the combined market value of the top ten holdings accounted for only 29% of the fund's net value. Therefore, more specific holdings of Hong Kong stocks will have to wait for the disclosure of the interim report.

(Source: Second quarter report)

These fund bosses are also optimistic about Hong Kong stocks

In the second quarter, many star fund managers were also actively increasing their allocations to Hong Kong stocks, including Xiao Nan of E Fund, Qu Yang of Qianhai Kaiyuan, Fu Pengbo of Ruiyuan Fund, and Zhang Kun of E Fund.

In the second quarter reports, major fund managers also said that they increased their allocation to Hong Kong stocks because they were "cheap" enough.

Qiu Dongrong, who recently announced his resignation from Zhonggeng Fund, mentioned in the quarterly report that "the current overall valuation level of Hong Kong stocks is basically at the historical 20th percentile and still has a very high cost-effectiveness; against the backdrop of continued outflow of foreign capital, Hong Kong stock assets show a systematic underestimation feature, and the implied return level of equity assets is high, and should be actively allocated."

In addition, Fu Beijia, manager of HSBC Jinxin Hong Kong Stock Connect Dual-Core Strategy Fund, believes that the downward trend of interest rates in 2024 will be established, the liquidity pressure on Hong Kong stocks will be relieved, and there will be more room for domestic monetary and fiscal efforts. With the valuations of A-shares and Hong Kong stocks at low levels and risk premiums at high levels, it is expected that earnings and valuation recovery will begin.

At the same time, Cui Chenlong of Qianhai Kaiyuan also believes that the Hong Kong stock market has experienced a decline in the past few years, and the overall valuation level is already low, which has strong investment attractiveness.

Although major fund managers have called out, the divergent performance of funds does not mean that Hong Kong stocks can be bought blindly. At present, the Hong Kong stock pharmaceutical sector is still weak, and the technology stocks that have been active from time to time are currently fluctuating sideways after a wave of rebounds.

Disclaimer:This report (article) is an independent third-party research based on the public company attributes of listed companies and the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.). Market Capitalization strives to be objective and fair in the content and views contained in the report (article), but does not guarantee its accuracy, completeness, timeliness, etc. The information or opinions expressed in this report (article) do not constitute any investment advice, and Market Capitalization shall not bear any responsibility for any actions taken as a result of using this report.

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