GTHT Securities released a research report stating that recent signals of easing tensions in the Middle East have been continuously validated. Since April 8th, risk assets have significantly outperformed other major global asset classes, indicating a gradual recovery in market risk appetite. The institution believes that current geopolitical risks are progressively easing. Although fluctuations may still occur, given that the boundaries of the risk are becoming clearer, the subsequent pricing of asset prices in response to conflicts is expected to become increasingly muted. Investors are likely to grow less sensitive to risk factors over time while becoming more responsive to positive developments. The recommendation is to overweight A/H shares, gold, and crude oil. The main views of GTHT Securities are as follows:
Overall Market Assessment: The period of maximum impact on risk appetite from geopolitical risks has largely passed. Recent signals of easing Middle East tensions have been consistently verified. Since April 8th, the pronounced outperformance of risk assets within the global major asset classes confirms that market risk appetite is gradually recovering. GTHT Securities posits that while geopolitical risks may still experience volatility, they are in a process of gradual alleviation. As the risk parameters become more defined, asset price reactions to conflict developments are anticipated to become duller. Drawing lessons from the Russia-Ukraine conflict, during phases of recovering and rising risk appetite, assets that experienced deep declines previously tend to exhibit greater rebound elasticity. Attention is advised on Hong Kong stocks, which have seen significant corrections since late February.
Hong Kong Stock Market: Unique adverse factors previously suppressing the Hong Kong market are gradually improving. Preliminary signs of an inflection point are emerging for Hong Kong stock micro-liquidity and fundamental expectations. On one hand, micro-liquidity pressures in the Hong Kong market have eased compared to earlier periods. The trend of sustained foreign capital inflows this year is expected to continue against a backdrop of domestic stability and growing recognition of the Hong Kong capital market's advantages. Tighter regulations are also likely to lead to a more cautious pace for Hong Kong IPOs. On the other hand, a narrative foundation for a reversal in Hong Kong market fundamentals is forming. Beyond reduced intensity in external competitive pressures, more importantly, domestic models have gained global prominence since the beginning of the year due to excellent performance per token. The international expansion of token-related businesses has become a key catalyst for a fundamental turnaround in Hong Kong stocks. Subsequent focus should be on North American tech giants' Q1 earnings reports for initial validation.
Hong Kong Stock Sector Comparison: Short-term disruptions from the external environment may still recur. Maintaining a core position in Hong Kong dividend stocks is recommended, with particular attention to the Materials and Financial sectors, which have shown significant divergence between fundamental performance and stock price performance since March. Concurrently, the institution judges that the impact of Middle East tensions on market risk appetite will gradually diminish, with pricing logic ultimately reverting to intrinsic growth. Therefore, the recommendations are: 1) Gradually increase allocation to the Technology sector in Hong Kong stocks, focusing on its scarcity advantages, particularly the Hang Seng Internet index and large language models. 2) Increase focus on resilient external demand/overseas expansion chains, especially new energy vehicles benefiting from the energy transition, and innovative drugs which have low correlation with macro-economic cycles but show sustained micro-level growth.
Hong Kong Stock Monitoring Indicators: Notable marginal changes in the recent week include: 1) Southbound capital turned to net inflows this week following significant outflows the previous week, primarily increasing positions in banks, discretionary consumer retail, durable consumer goods, semiconductors, and innovative drugs. 2) Rises in the Hong Kong stock market and major overseas markets this week were accompanied by declining trading volume enthusiasm and lower index volatility, indicating some abatement of the extreme risk-appetite recovery sentiment. 3) Analyst consensus earnings estimates for the Hong Kong Materials sector continued to be revised upwards this week, further widening the divergence from stock price performance. 4) Zhipu AI and Minimax are expected to be included in the Southbound Stock Connect on June 8th and August 6th, respectively.
Risk warnings include the potential for the Middle East conflict to spread beyond expectations and the possibility of the Federal Reserve tightening policy more than anticipated.
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