In a monthly dialogue recorded for Julius Baer on June 16th, renowned economist and Chief Investment Officer of Lianhua Asset Management, Hong Hao, shared his latest views on topics including the divergence within the A-share and Hong Kong stock tech sectors, gold, and provided his current allocation strategy.
As of today's (June 22nd) market close, the Hang Seng Tech Index has fallen 17.52% year-to-date, while the ChiNext and STAR 50 indices have risen 36% and 45% respectively. This gap of over 50 percentage points highlights a severe divergence between "old tech" and "new tech".
Patience Advised for Hong Kong Internet Stocks
Regarding whether Hong Kong-listed internet stocks might see a short-term rebound, Hong Hao advised investors to remain patient. Despite the Hang Seng Tech Index experiencing extreme oversold conditions and significant capital outflows, he remains cautious about declaring the end of the downtrend. He noted that key economic growth drivers, namely consumption and investment growth, are simultaneously showing a notable slowdown, and this fundamental weakness will continue to be reflected in the stock market.
Parabolic Rises Lead to Parabolic Falls
On the surging A-share AI sector, Hong Hao stated bluntly that "parabolic rises inevitably lead to parabolic falls." He pointed out that current market participation is extremely narrow, with the ratio of rising to falling stocks at about 1:3, indicating only a few heavyweight stocks are leading the gains. Valuations in the semiconductor sector have become extremely expensive, with both price-to-sales and price-to-earnings ratios flashing warning signals. He cautioned that the massive profit surges for some companies stem from short-term AI-related capital expenditure orders, which should not be simply viewed as permanent growth.
He anticipates that a major technical correction is approaching and should be visible within the next two months or so. However, he clarified that such a correction does not equate to the bursting of the bubble.
Allocation Strategy: Prioritize Safety
For allocation strategy, Hong Hao recommends investors prioritize safety, suggesting profit-taking on rallies and rotating capital into previously underperforming dividend-yielding sectors. This approach can provide both dividend income and a buffer during a market correction. He also highlighted that IPO fundraising in Hong Kong this year has already surpassed the historical peak of 2025, siphoning significant capital to the primary market. Furthermore, the pattern in the US stock market over the past decade, where corporate buybacks far exceeded fundraising, has reversed this year. This lack of liquidity directly impacts stock market performance.
Gold's Downward Pressure Not Yet Exhausted
Regarding gold, Hong Hao believes short-term downward pressure has not been fully released. While a daily-chart level rebound is possible, he views a level around $3,800 as a more ideal entry point for positioning.
Overall, Hong Hao emphasized that a major correction should not be conflated with a crisis. However, under the current extreme market conditions, controlling risk and preserving capital is the prudent course of action.
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