Adjustment is coming! Hong Kong real estate stocks plummeted! The index collapsed! The risk aversion sentiment in the stock market increased, and funds are expected to flow back to the cryptocurrency market! Regardless of whether there is a chance or not, I just bought the bottom.
After yesterday's surge, the Hong Kong stock market experienced a sudden change this morning. Hang Seng Technology fell by more than 6% at one point, and brokerage stocks and real estate stocks plunged. Many people began to shout that they would run away when the A-share market opened on the 8th. If many people really run away, they will probably go back to the cryptocurrency market to buy the bottom after the A-share market fell back for a few days, which is a good thing for the cryptocurrency market.
So, what happened?
First, JPMorgan analysts pointed out in a report that the current valuation level of Chinese real estate stocks has already reflected the same operating environment as before the Evergrande crisis broke out, which is unreasonable. The Hong Kong stock market, which is dominated by foreign capital during the holiday, may return to rationality in stages.
Secondly, the Japanese stock market surged today, and the seesaw effect was more obvious. At the same time, the US dollar has risen for four consecutive days, and expectations for US interest rates seem to have changed again.
Third, the recent growth of Hong Kong stocks has been too fast and too large. The valuation levels of some large-cap stocks such as Tencent and Xiaomi are already close to those of corresponding blue-chip stocks in the U.S. stock market, which may have also caused some concerns among foreign investors.
Sudden big dive
Hong Kong stocks, which soared yesterday, plunged sharply in early trading today. The Hang Seng Tech Index fell by more than 6% at one point, while the Hang Seng Index and the China Enterprises Index both fell by more than 3%.
Analysts at JPMorgan Chase pointed out in a report on Wednesday that the current valuation level of Chinese real estate stocks has reflected the same operating environment as before the Evergrande crisis broke out, which is unreasonable. Real estate and brokerage stocks that soared yesterday have fallen sharply. Real estate stocks such as Kaisa, China Aoyuan, Shimao, and Sunac fell collectively, with a drop of about 20%. CITIC Securities fell more than 12%, and the Southern Science and Technology Innovation Board 50 ETF fluctuated sharply in the short term.
It is worth noting that today, Hong Kong stocks and Japanese stocks once again formed a seesaw effect. Yesterday, Japanese stocks fell sharply, while Hong Kong stocks rose sharply; today, Japanese stocks rose sharply, while Hong Kong stocks fell sharply. There seems to be a force of grabbing capital. Japanese Chief Cabinet Secretary Yoshimasa Hayashi said that Shigeru Ishiba and Kazuo Ueda confirmed that the Japanese government and the central bank will continue to cooperate according to the agreement. Shigeru Ishiba said that the specific monetary policy will be decided by the Bank of Japan.
In addition, although Chinese assets have risen sharply recently, it should also be noted that although the Federal Reserve has cut interest rates, the U.S. dollar index has recently risen for four consecutive days. Moreover, on Wednesday local time, the latest data on new private sector jobs in the United States in September rebounded more than expected, putting pressure on the market's expectations that the Federal Reserve will cut interest rates by another 50 basis points in November.
On the other hand, after the sharp rebound of Hong Kong stocks, valuations are also recovering rapidly. The valuations of some blue-chip stocks are not far from those of U.S. blue-chip stocks. For example, Tencent Holdings' PE (TTM) is 25.72 times, while Facebook's (META) PE (TTM) is only 28 times. Xiaomi's PE (TTM) is 28 times, while Apple's is 33 times. Valuation constraints for large-cap stocks may have emerged.
What to do next?
So, is the rebound of Hong Kong stocks a rest or an end? I believe most people would think that it is just a rest here. First of all, although the Hong Kong stock market adjusted today, the A50 index still maintained a relatively strong performance. The index once turned green due to the sharp drop of Hang Seng Technology, but it was quickly pulled up again. Secondly, although big banks such as JPMorgan Chase are not optimistic about real estate, according to the latest data from the Hong Kong Stock Exchange, on September 26, JPMorgan Chase increased its holdings of Ping An of China (02318.HK) by 39,861,682 shares, at a price of HK$44.4327 per share, with a total amount of approximately HK$1.771 billion. After the increase, the latest number of shares held is approximately 617 million shares, and the latest shareholding ratio is 8.28%. In addition, JPMorgan Chase also upgraded the rating of China Galaxy H shares to overweight, with a target price of HK$12.59 per share, which is a 39% increase.
Huatai Securities believes that from the perspective of incremental funds, the first is the global foreign capital replenishment effect; it is estimated that as of the end of the second quarter, Chinese stocks accounted for 1.3% of the equity portfolios of the world's top 20 asset management institutions (including mutual funds/hedge funds/trusts, etc.), which is 1.9pct lower than the MSCI ACWI China benchmark weight; if the expected improvement, the allocation of foreign capital to China returns to the first quarter level (lower allocation by 1.7pct), or it may bring about a net inflow of about US$17 billion to the top asset management institutions; if it returns to the central level of 2018-2020 (lower allocation by 0.5pct), it may bring about a net inflow of about US$100 billion. Secondly, the effect of closing existing short positions; although the proportion of short positions in Hong Kong stocks has been at a historically low level since September, the number of open short positions in the entire market has not fallen significantly, and the power of closing existing short positions has not been fully released.
Moreover, DataTrek Research said that if history is any guide, this rally may still have a lot of room to run. It said that if the relative performance of the iShares China Large Cap ETF (FXI) and the SPDR S&P 500 ETF Trust (SPY) is compared over a 100-day time frame, Chinese stocks led the U.S. by more than 30 percentage points during periods of positive policy shifts such as 2009, 2015 and 2023, while they are currently only 13 percentage points ahead.
Analysts believe that the future potential of Hong Kong stocks may depend on the popularity of A-shares on the one hand, and on the trend of the US dollar on the other. Recently, during the rise of Chinese assets, the US dollar has been too strong, and the Federal Reserve is still shrinking its balance sheet. In other words, offshore US dollar liquidity is not as loose as imagined. Therefore, the aforementioned seesaw effect occurs. If the Hong Kong stock market rises too much and the valuation increases too quickly, fluctuations will naturally occur.