HK - Market Strategy 04 (Apr 25 - Dec 27)

[winston]

Chinese money fires up Hong Kong shares

Institutional money is gushing in too, causing the gap in dual-listed stocks to compress, although China’s capital controls ensure some variance remains

A record US$90 billion of cash from the mainland has driven a stellar 21 per cent rally in Hong Kong stocks in the first half of 2025.

Mainland investors via Stock Connect now contribute to 50 per cent of Hong Kong’s daily stock turnover, up from around 30 per cent at the beginning of 2024.

High-dividend bank shares in Hong Kong have attracted yield-focused investors such as Ping An Insurance and China Life, as long-term treasury yields flirt with record lows.

Source: Reuters

https://www.businesstimes.com.sg/compan ... ong-shares

[winston]

<Research>CICC: Investors Shall Moderately Reduce Positions in HK Stocks in ST, Keep 'Bullets' for Future Opportunities

The macro environment for industry rotation in Hong Kong stock market is characterized by 'abundant capital + asset scarcity = index volatility + extreme structure', CICC recently released a research report saying.

The reason why the market is characterized by index oscillations but with active market structure was due to the lack of overall economic returns, the existence of structural highlights and the strong abundance of capital.

At the industry level, the above analysis shows that new consumption and innovative drug unite was also very evident.

In this context, tightened short-term liquidity margin, tariff negotiation variables, weakening data and delayed policy launch may cause market volatility.

Therefore, CICC suggested investors can
1) moderately reduce positions in the short term,
2) switch to stable dividends,
3) wait for future opportunities for AI internet, which is expected to have significantly slowed since the beginning of the year.

If significant fluctuations occur, investors can instead intervene more aggressively to buy back quality assets at a lower cost, but only if they can keep the “bullets”.

Source: AASTOCKS Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

<Research>Guotai Haitong Expects Southbound Capital Inflow to Exceed $1T This Yr w/ Clear Differences in Sectors Preferred by Different Institutions

Dissecting the southbound structure from various types of investment subjects, historically, retail investors and other funds are the main force of southbound capital, Guotai Haitong Securities issued a research report saying.

However, in 1Q25, insurance funds, publicly offered funds and other institutional funds, promoted the net inflow of Southbound Trading of Stock Connects to a new high.

Different types of investors have significant differences in their preferred sectors for Hong Kong stock market, with Chinese public offering of funds favoring tech and pharma, and insurance funds liking premiums.

For the whole year, against the backdrop of asset shortage, there is still room for institutional funds to increase their allocation to scarce Hong Kong stock assets.

The broker quantitatively estimated the 2025 net inflow of southbound funds to exceed $1 trillion.

There were obvious differences in the preferred sectors of Hong Kong stocks among different organizations.

This year, southbound funds mainly flowed into internet technology and banks, such as retail, software services and banks. The driving force behind this may vary.

As the positions of private equity funds in Hong Kong stocks are relatively opaque, Guotai Haitong Securities mainly researched the incremental size of active public offerings, ETFs and insurance funds in various sectors.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

Positioning for potential fund rotation

Hang Seng Index has rebounded to its Mar 25 peak, while Hang Seng TECH Index remains 5.9% below its March high.

Since mid-Mar 25, we have observed pronounced sector divergence:
Biotech has clearly outperformed, while Retailing (Alibaba, JD.com and Meituan) and Consumer Services (catering, education) have underperformed (Figs 6-7), reflecting investor concerns over weak household consumption and intensifying involution-style competition in e-commerce platforms.

Amid the current liquidity environment, policies and hunting-for-laggard trades could drive meaningful fund rotation.

i) Among the laggards, we prefer catering names such as Yum China (Add, TP: HK$459.0, CP: HK$383.2) and smartphone supply chain stocks such as BYD Electronics (Add, TP: HK$46.8, CP: HK$33.6) and AAC Tech (Add, TP: HK$63.0, CP: HK$39.3).

ii) “Anti-involution” regulatory measures for food delivery/instant delivery and new energy vehicle sectors could bring significant upside for Alibaba (Add, TP: HK$153.0, CP: HK$120.9), Meituan (Add, TP: HK$161.0, CP: HK$133.2) and XPeng (Add, TP: HK$123.8, CP: HK$74.1).

Meanwhile, even among the outperforming sectors, we believe valuations are undemanding for insurance and “soft tech” names (games, short videos, music streaming, AI applications) and hence could bring near-term upside potential.

Our high conviction names include Tencent (Add, TP: HK$654.0, CP: HK$552.0), Bilibili (Add, TP: HK$233.0, CP: HK$197.5), Prudential (Add, TP: HK$142.0, CP: HK$98.1) and AIA (Add, TP: HK$103.0, CP:HK$71.3).

We are also positive on the biotech sectors despite YTD strength.

We suggest investors retain exposure to large caps with FY25-26F breakeven potential such as BeOne (Add, TP: HK$197.7, CP: HK$180.9), and those with 2H25F catalysts from out-licensing deals.

Source: OCBC

[winston]

Bullish outlook seen for Hang Seng Tech Index

by Zane Aw Yu Xuan

Staged a significant breakout above the 5,500 level in the latter half of July.

Firstly, market sentiment has been lifted by the government’s promises to tackle price wars and curb overcapacity in industries such as solar panels, electric vehicles and online food delivery.

Secondly, the planned resumption of Nvidia’s H20 AI chips supply to China also boosted optimism over the country’s tech development efforts.

Thirdly, a surge in mainland Chinese investors’ purchases of Hong Kong-listed technology stocks has provided a strong tailwind.

This year’s total to HK$800 billion, a figure just shy of the 2024 record of HK$808 billion.

Source: Business Times

https://www.businesstimes.com.sg/compan ... tech-index

[winston]

China, HK garner net fund inflows over US$44b

China and Hong Kong attracted about US$44.3 billion (HK$345.5 billion) in net fund inflows between April and late July.

This reversed earlier net outflows of approximately US$10.6 billion recorded between January and March.

Uncertainties are prompting international investors to adopt more proactive diversification strategies, with China-related and yuan assets increasingly taking up a larger share of their portfolios.

A large portion of the inflows came from traditional funds in Europe and the US, mainly targeting Chinese bonds, with about 50 to 60 percent channeled via Hong Kong’s Bond Connect.

The city is aiming to become the world’s largest wealth management center by 2028.

Source: The Standard

https://www.thestandard.com.hk/wealth-a ... le/308172/

[winston]

Temasek fine tunes Chinese stock portfolio as PIF exits Alibaba in sovereign fund tweaks

Temasek slashed its holdings of JD.com by 87 per cent, cut its Alibaba stake by two-thirds and cut NetEase by 38 per cent, according to its 13F disclosure

by Yulu Ao

Two of the world’s largest sovereign wealth funds have adjusted their stakes in Chinese equities, trimming their exposure to technology stocks while going long on consumer companies as they mirrored Bridgewater Associates in reacting to volatile markets and rising US-China tensions.

Singapore’s Temasek Holdings cut its stake in Alibaba Group Holding by two-thirds to 1.85 million shares in the quarter that ended in June, according to its 13F disclosure on Thursday.

It slashed its JD.com holdings by 87 per cent to 589,256 shares, cut NetEase by 38 per cent to 1.45 million shares and pared H World Group by 8 per cent to 6.24 million shares.

Temasek went long on PDD Holdings, increasing its stake in the Pinduoduo discount e-commerce platform by 28 per cent.

It raised its investments in Yum China, which operates the KFC and Pizza Hut franchises in the country, by 30 per cent.

It invested in some companies for the first time, buying 1.23 million shares of the real estate brokerage KE Holdings and 1.19

Source: SCMP

https://www.scmp.com/business/china-bus ... pe=section

[winston]

Mainland Chinese traders sell record amount of Hong Kong stocks

Investors in mainland China sold a record HK$20.4 billion (S$4.1 billion) worth of Hong Kong-listed stocks on Thursday (Aug 28), a sign the country’s army of investors are returning to their local market amid a breakneck rally.

“There may be some funds reverting back to the mainland in a re-balancing of positions after the strong inflows lately” .

Source: Bloomberg

https://www.businesstimes.com.sg/compan ... ong-stocks

[winston]

1H Earnings 2025

The earnings season is drawing to an end, with 78 out of the 85 members of the Hang Seng Index having disclosed interim results.

Profit growth for those 78 companies averaged 2.6 per cent year on year, compared with a 17 per cent increase for the preceding six-month period.

Source: SCMP

[winston]

<Research>DBS Reiterates Positive Outlook on HK Stocks, Favors Tech/ Non-bank Financial Sectors; Interim Results from ~38% of HK-/ CN-Listed Firms Beat

DBS has released a strategy report on the H- and A-share markets, noting that Hong Kong-listed companies have delivered mixed corporate results for 1H25.

Quarterly net profit growth slowed slightly, with analysts mildly lowering their earnings forecasts for Hong Kong stocks, but raising theirs for A-shares.

According to the broker, among the 187 HSI and CSI 300 constituent stocks under its coverage, 38% of them reported earnings that exceeded expectations (an immense increase of 12.5 ppts compared to the FY24 results period).

Meanwhile, the proportion of companies missing expectations also rose by 12.1 ppts to 40.6%, indicating a widening gap in earnings performance.

Overall, net profit growth for H- and A-shares in 2Q25 slowed slightly from 3.1% YoY in 1Q25 to 2.5%.

The mixed earnings also reflected macroeconomic challenges in 1H25, DBS stressed.

However, management remains confident, and there are early signs of economic recovery following the launch of anti-involution measures in mainland China, such as a rebound in factory gate prices and improved August PMI orders.

These factors are expected to help ease concerns over fundamentals and support market sentiment.

The broker upholds a positive view on H- and A-shares, reiterating its preference for the technology and non-bank financial sectors.

It also views the anti-involution campaign as creating trading opportunities for sectors like solar energy.

By sector, media & entertainment and household & personal products saw the highest proportion of earnings surprises, with all companies in these sectors beating market expectations.

TENCENT (00700.HK) saw its 2Q25 results far exceed expectations thanks to its AI initiatives, BIDU-SW (09888.HK) benefited from lower-than-expected operating expenses, and MIDEA GROUP (00300.HK) achieved strong profit growth due to improved efficiency and solid performance across markets.

In contrast, the semiconductor and utilities sectors had the highest proportion of earnings misses. SMIC (00981.HK) and HUA HONG SEMI (01347.HK) both faced gross margin pressure, while CHINA LONGYUAN (00916.HK) was affected by a decline in utilization hours.

In the internet sector, fierce competition in the food delivery industry weighed on the profits of MEITUAN-W (03690.HK), JD-SW (09618.HK) and BABA-W (09988.HK).

DBS expects this trend to continue in the short term, with MEITUAN-W being the most affected.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN