Guosen Securities has released a research report indicating that due to the deterioration of the Iran situation, Hong Kong stocks, particularly the Hang Seng Tech Index, have entered a period of peak panic. Tracking the earnings bottom for the Hang Seng Tech Index is considered crucial for several reasons. First, the index valuation is very low, and its absolute level is also depressed, nearing the starting point seen last April. Second, following the release of annual reports, some major companies are expected to resume share buybacks, and increased buying from southbound capital should lead to a gradual improvement in liquidity. Third, food delivery losses are projected to narrow significantly quarter-on-quarter starting from Q4, while the automotive sector is expected to show improvement month-on-month in January-February as new models are launched. Fourth, although the progress in AI among key index constituents currently lags behind some non-index or private companies, the advantages of large companies in computing power, data, and capital will gradually narrow this gap. However, uncertainty surrounding the Iran situation necessitates a balanced approach to allocation.
Regarding specific sectors, Guosen Securities is optimistic about several areas. The energy and shipping sectors are viewed favorably as their prices, elevated by geopolitical factors, can act as a hedge against other sectors. In the materials and industrial sectors, the main theme for the first half of the year is expected to be greater elasticity in the Producer Price Index (PPI). Commodities typically perform strongly in the late expansion phase of the Kitchin cycle. Precious metals offer a long-term hedging logic against US dollar credit risk, while manufacturing exports represent a clear global competitive advantage with relatively definite corporate profits. For the AI direction, the long-term value proposition is considered very attractive. The relatively prosperous segments include hardware such as semiconductors, optical modules, and optical fibers, which benefit from both solid performance and policy support. Another focus is large language models, with the key attraction being the evolution of AI models. In the consumer sector, valuations are at the 1st percentile compared to the past decade. This sector's strength lies in its stability and relatively independent performance, making it less affected by international turmoil. Finally, the innovative drug sector has seen upward revisions to its performance forecasts. Further upside potential exists if the US dollar index retreats, coupled with the gradual release of Business Development (BD) outcomes.
In the United States, the strong US dollar persists, influenced by the Middle East situation. Economic cycles suggest the dollar index should remain within a weakening trend in the first half of the year. The Iran situation represents the most significant disruption; its subsequent development could impact the economic cycle through expectations for oil prices and inflation. If a conflict persists for more than a quarter without a decline in oil prices, it would have a substantive effect on inflation expectations. Amid cautious optimism, three warning levels are set: US long-term bond yields at 4.5%, WTI crude oil prices breaking through $80 (and failing to retreat), and the US dollar index returning to 100.
Domestically, the PPI-related chain is showing stronger performance. Overall, the PPI chain has exhibited stronger trends since the beginning of the year. Concurrently, the A-share market has displayed divergence between broad market indices and style/industry indices. The movement of style and industry indices reflects "stock prices being driven by earnings," while broad market indices indicate "stock prices being driven by sentiment." This, to some extent, reflects the diversified nature of capital in the A-share market, with one portion focused on fundamentals and another on momentum and expectations.
Comments