Internet leaders and leading technology companies may become the focus of Hong Kong stocks in the second half of the year
2024-08-12
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Our reporter Liu Hui
On August 9, 2024, the Hang Seng Index in Hong Kong closed up 1.17% at 17090.23 points, up 0.85% for the week; the Hang Seng Tech Index rose 2.08% for the week, up 1.51% for the week; and the Hang Seng China Enterprises Index rose 1.29% for the week, up 0.72%. What are the characteristics of Hong Kong stock fundraising and market performance this year? What changes will there be in the Hong Kong stock market in the second half of the year?
The increase in Hong Kong stocks is similar to that of A-shares
"Since 2024, the sluggish fundraising trend of A-shares does not seem to have affected the Hong Kong stock market." Cheng Qiang, director and chief economist of Debon Securities Research Institute, told China Economic Times that in terms of the amount of funds raised, Hong Kong stock fundraising has shrunk slightly, but the decline is not as large as that of A-shares. In the first seven months of this year, Hong Kong stocks raised a total of HK$75.9 billion, of which IPOs raised about HK$18.12 billion, 87% of the same period in 2023; and HK$57.78 billion after listing, 93% of the same period in 2023. A total of 184 companies raised funds through allotments after listing, raising a total of HK$32.9 billion; a total of 2 companies raised funds through public offerings after listing, raising a total of HK$170 million; a total of 31 companies raised funds through rights issues after listing, raising a total of HK$10.94 billion; and a total of 24 companies raised funds through listing consideration issuance, raising a total of HK$13.78 billion.
Fang Yi, chief strategy analyst at Guotai Junan Securities, told China Economic Times that from the performance of the Hong Kong stock market, as of the end of July, the Hang Seng Index rose by 1.74%, the Hang Seng China Enterprises Index rose by 5.87%, and the Hang Seng Technology Index fell by 6.57%. The Hong Kong stock market performed better. In terms of sectors, Hong Kong stocks with stable cash flow, such as energy, banking, and public utilities, have the highest growth, which is similar to the overall A-share market. In addition, Hong Kong stocks in the telecommunications, media and information technology sectors also recorded gains.
Dongxing Fund Manager Zhou Hao told China Economic Times that the Hong Kong stock IPO market has been relatively sluggish this year due to the impact of the Fed's interest rate hike, but there have been signs of recovery in recent months. From January to July, Hong Kong added 40 new listed companies, with a total fundraising of approximately HK$17.3 billion. The number of new stocks and the amount of financing were both lower than the same period last year. However, with the rebound of Hong Kong stocks in April, the liquidity and valuation of the Hong Kong market have improved. Since May, the number of newly listed companies and the amount of funds raised have continued to rise. In July, 10 new stocks were listed on the Hong Kong Stock Exchange, with a total fundraising of HK$4.6 billion, which is higher than the previous six months in both number and amount.
Zhou Hao analyzed that in terms of the average return rate of the first day of new shares, the Hong Kong stock market was 16.67% in the first half of 2024, higher than 6.29% in the same period last year. The overall oversubscription performance of new shares has improved significantly compared with the same period last year. In 2024, 93% of IPOs were oversubscribed, compared with 86% in the same period last year, reflecting the market's ups and downs. With the mainland regulators encouraging companies to go public in Hong Kong, the return of Chinese stocks, the Federal Reserve's interest rate cuts and other internal and external factors, the Hong Kong stock new share market is expected to pick up further.
Earnings recovery is expected to drive valuation recovery
Looking ahead to the second half of the year, Cheng Qiang said that in terms of liquidity, "financial conditions" are easier to loosen than to tighten. Canada and the European Union have already jumped the gun, and the Federal Reserve will eventually "start running". The market has been expecting global liquidity easing since the end of 2023, and it has been revised several times this year. Looking ahead to the second half of 2024, the recovery of Hong Kong-listed companies' earnings still needs to closely track the domestic economy and listed companies. The Politburo meeting of the CPC Central Committee emphasized boosting domestic demand, and corporate profits are expected to improve marginally. The active repurchases of Hong Kong-listed companies this year have helped to restore confidence and rebalance the supply and demand of funds. The Hang Seng Index's dynamic price-to-earnings ratio of 8.56 times is still at the historical bottom, and it is expected that the valuation will rebound as earnings recovery in the second half of the year.
Fang Yi said that low valuations, more proactive policies and a resonant interest rate cut cycle at home and abroad have given the Hong Kong market better room for valuation repair. After three years of adjustment, the valuation percentile of the Hang Seng Technology Index is only 4.4%. The market has priced in various uncertainties and risk factors. Such a low valuation level is rare in history. The decline in policy uncertainty is an important basis for the rebound of the Hong Kong stock market, and Hong Kong stock assets are returning to the investors' horizons. In 2024, relevant departments clearly stated that "more policies will be introduced to stabilize expectations, growth, and employment, and contractionary and inhibitory measures will be prudently introduced." The regulatory orientation of the platform economy is changing. The process of contraction based on policies and valuations and a decline in risk appetite in the Hong Kong stock market over the past few years has ended, and the bottom of the valuation is clear.
In Fang Yi's view, high-quality assets in Hong Kong stocks have high expected returns and have high allocation value. The five major cooperation initiatives of the China Securities Regulatory Commission with Hong Kong, coupled with large-scale stock repurchases and more active dividends by representative Hong Kong companies, have significantly improved the liquidity of Hong Kong stocks. Compared with the US, European, Japanese and Indian stock markets, Hong Kong stocks have lower valuations and higher safety margins. The lower valuations, lighter assets and faster profit growth of high-quality Hong Kong-listed companies, especially Hong Kong-listed Internet companies, are important sources of income for both domestic and overseas investors. Due to the slowdown in the US economy, overseas markets are expected to enter a new round of interest rate cuts, which will help open up space for China's monetary policy. The decline in risk-free interest rates will help benefit the liquidity of the Hong Kong stock market and promote valuation repair.
Zhou Hao said that the fundamentals of the Hong Kong stock market are mainly affected by the mainland economy, but the liquidity is affected by global investors. From a fundamental point of view, combined with the performance forecasts of some companies, Hong Kong stocks of resource products, home appliances related to the export chain and shipping, water, electricity, gas, and education services have performed well. As the policy of stabilizing growth in the second half of the year begins to take effect, combined with the July meeting of the Political Bureau of the CPC Central Committee proposing that "macroeconomic policies should continue to be more effective and more powerful", it will play a positive supporting role in the fundamentals of the Hong Kong stock market. Overseas, various factors have recently led to a reversal of the US-Japan carry trade, US stocks and Nikkei have been under pressure, and overseas risk-off transactions have emerged, but the current data cannot confirm a hard recession in the United States, the market's expectations for interest rate cuts (recession) are relatively full, and the current data and expectations are weakening or may lead to a clearer interest rate cut by the Federal Reserve, and the liquidity of the Hong Kong stock market will be improved. For Hong Kong stocks, although the market risk-off transactions will suppress the sentiment of Hong Kong stocks, the valuation of Hong Kong stocks is obviously low, and there is not much room for Hong Kong stocks to fall in this round of risk-off transactions. Internet leading companies, consumer electronics, semiconductors, innovative drugs, etc. are expected to become the focus of the market.
Fang Yi said that Hong Kong stocks can focus on three directions: Hong Kong Internet leaders, Hong Kong technology and high dividends. Hong Kong stocks have many directions that represent China's new quality productivity. The next investment opportunity in China is in the technology manufacturing industry, such as Hong Kong semiconductors, Hong Kong pharmaceuticals, and Hong Kong automobiles. The long-term investment value of high-dividend stocks is still relatively prominent, and high-dividend industries such as communication operators, energy and utilities can be paid attention to.
