In recent times, Hong Kong stock theme funds have made headlines with their impressive performance, mirroring the strong rebound of the Hong Kong stock market itselfObservations indicate a striking correlation between the surge in these funds and the robust performance of the Hong Kong stock exchange, particularly noted after the market reset itself from a prolonged downturn.
Specifically, from April 19 onwards, Hong Kong stocks have experienced a remarkable reboundThe Hang Seng Index, a key indicator of stock performance in the region, has witnessed an approximate rise of nearly 20% over the course of a month, with even more significant gains in the Hang Seng Tech Index, soaring by 23%. This resurgence has prompted investors to contemplate the sustainability of this upward trend in the market and what it means for the future of investments in Hong Kong.
For many investors, the recent advancements feel like a welcome return to the market’s “spring” season
Recent data from Choice has shown that from April 22 to May 6, the Hang Seng Index recorded a continuous increase over ten trading days, marking the longest uninterrupted growth period since February 2018. As of May 20, the index's increase reached a staggering 19.84%. This wave of positive momentum has also extended to companies listed in the United States that are based in China, with some of these Chinese concept stocks experiencing a similar resurgence.
The deluge of gains in Hong Kong stocks has attracted substantial attention toward thematic funds focusing on the Hong Kong marketBy May 20, several exchange-traded funds (ETFs) centered on the Hang Seng Internet and Technology sectors posted gains exceeding 25%, far outperforming their counterparts in similar QDII fundsMeanwhile, mixed funds have also shown remarkable performance, with several Hong Kong Stock Connect and Hong Kong-Shanghai-Shenzhen themed funds achieving net value growth rates above 20% over the same period.
Despite the bullish trend, it is crucial to remember the recent historical context of the Hong Kong stock market
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This recent rally appears more like a long-awaited refreshment after an extended droughtAs of May 20, many funds bearing names like “Hang Seng” or “Hong Kong Stock Connect” still exhibit net values below one, indicating that a significant number of investors who favored Hong Kong stocks have been caught in unfavorable positions.
The volatility in the Hong Kong market is a tale of two timing periodsFollowing the peak of 31,183.36 points on February 18, 2021, the Hang Seng Index plummeted, hitting a low of 14,597.31 points on October 31, 2022. The tech sector faced similar fate with the Hang Seng Tech Index dipping from 11,001.78 points to a dismal 2,720.38 pointsMany of the thematic funds currently witnessing substantial growth were established during the first half of 2021, thus bearing the brunt of the market's decline — and now finally experiencing this anticipated rebound.
As investors celebrate the current upswing, important questions remain: Is this rise genuine or merely a brief token? Views among financial analysts diverge
Independent financial commentator Guo Shiliang attributes the recent surge in stock prices to several factors including the prior market declines, attractive valuations, and affirmative policies supporting growthThis improvement in liquidity suggests the market's recovery process is underway, indicating we could be witnessing a long-haul recovery if the underlying conditions continue to evolve positively.
In an interview, Liu Youhua, Deputy Director of the Research Department at Paipai.com, shared insights on a multi-faceted rationale for the recent gainsHe highlighted that Hong Kong stocks are currently trading at low valuations, presenting good investment opportunitiesAdditionally, the depreciation of the Japanese yen, alongside the stabilization of the Chinese yuan, has led to a shift of global funds from the Japanese stock market towards the relatively undervalued Hong Kong market
Moreover, public investment funds have been increasing allocations toward Hong Kong stocks, driven by improved economic indicators emanating from China.
Considering the outlook for the post-rally environment, Zhang Yidong, Chief Global Strategist at Industrial Securities, believes that the current market activity is just the beginningHe predicts that major inflows of foreign capital into Chinese assets may likely materialize in the third quarter of this year.
Liu Youhua also echoed a positive sentiment regarding the market’s future, indicating that a prolonged bull market phase seems plausiblePoints supporting this view include the robust rebound of the Hang Seng Index, an ongoing improvement in liquidity, and the positive signals from policy reforms that may bolster the real estate market and enhance overall economic recovery.
From the perspective of market valuation, analysts at Guohai Franklin Fund suggest that the Hang Seng Index remains attractively positioned at lower valuations
They predict that by 2024, the price-to-earnings ratio for the index may fall below nine times, thereby welcoming potential further inflows from foreign investorsFrom a fundamental standpoint, there is a noticeable emphasis on shareholder returns among many companies on the Hang Seng; expected increases in dividends and buybacks suggest that the dividend yield for the index may exceed 4% by 2024.
Conversely, regarding overseas markets, investment firm Xing Shi suggests that both A-shares and Hong Kong stocks reflect low valuations, which have accommodated various negative information, alongside a backdrop of improving mid-term economic fundamentals in ChinaThis creates a viable investment propositionAs practical takeaways for investors, they advise focusing on core assets in both markets, particularly highlighting the internet sector in Hong Kong and the consumer services sector in China, which faces limitations but shows signs of recovery.