The Hang Seng Index started the trading session 0.82% lower, while the Hang Seng Tech Index declined by 1.31%. On the market, the new energy sector showed notable activity, with CATL advancing over 1%. Conversely, AI application stocks weakened, with MINIMAX dropping more than 4% and Kingsoft Cloud falling over 3%. Baidu rose more than 2% after the company approved a new $5 billion share repurchase program.
Regarding the outlook for Hong Kong stocks, Morgan Stanley released a research report stating that despite recent volatility in global markets and a significant correction in both Hong Kong and A-shares last Friday, it still believes that effective measures to cool the A-share market, a stronger US dollar against the renminbi, and initial signs of success from long-term regulatory support for Hong Kong can sustainably provide positive liquidity support for both markets.
Morgan Stanley also indicated that investors have experienced a relatively extended bull market since the beginning of the year. Coupled with the approaching Lunar New Year, some profit-taking is expected. Currently, within the A-share market, the firm prefers large-cap stocks over small-caps. If global volatility tends to ease, it would show a greater preference for Hong Kong stocks.
The institution believes that rising geopolitical uncertainties in other parts of the world will help enhance the attractiveness of Chinese assets. The Hong Kong market, due to its reasonable valuations, lower global investor positioning, numerous stock investment opportunities, and a very active IPO market, is poised to become the market of choice for investors. It is believed that Hong Kong stocks could outperform A-shares in the short term, but the ultimate outcome will depend on whether global volatility subsides quickly.
Galaxy Securities pointed out that looking ahead, global geopolitical risks remain a disturbance, and expectations for Federal Reserve interest rate cuts have diminished, leading to an anticipation of continued volatility in Hong Kong stocks. In terms of allocation, it recommends focusing on the technology sector, which remains a medium to long-term investment theme. Benefiting from multiple positive factors such as supply chain price increases, import substitution, and accelerated AI application deployment, the sector is expected to experience volatile upward movement.
With geopolitical situations remaining unpredictable, sectors like energy and precious metals are also expected to trend upwards volatility. The consumer sector currently has relatively low valuations, and with the Spring Festival approaching, an increase in consumption-stimulating policies is anticipated, potentially leading to a rebound in consumer stocks.
Huatai Securities expressed that since the rebound in late January, the sentiment index has moved from the panic zone to the optimistic zone in just 16 days. It advises viewing opportunities in Hong Kong stocks with an investment mindset rather than a speculative one. After such adjustments, the key current questions are the persistence of volatility and whether it will end the market's performance.
With sentiment already in the optimistic zone and crowding metrics not having significantly declined, volatility may persist in the short term, but this is likely more of a pullback than a reversal. The three drivers for market potential in the first quarter—improved liquidity, resonance in capital flows, and upward revisions to earnings expectations—remain valid. The firm suggests adopting a more medium-term perspective, emphasizing potential, and de-emphasizing the pace of gains.
In terms of sectors, it recommends using companies with earnings certainty as a core holding. The recent theme of a high degree of correction in the 'Tech + Cyclical Materials' sector remains unchanged, and investors could consider increasing allocations opportunistically.
Yuan International believes that in the current environment, Hong Kong stocks may continue to outperform US stocks, showing a trend of volatile upward movement. The primary reasons are that, affected by the fiscal cliff and geopolitical factors, the trend of US dollar credit impairment continues, which naturally benefits non-US assets. As a market primarily consisting of Chinese assets, Hong Kong stocks stand to gain.
Secondly, Hong Kong stocks themselves have long had lower valuation levels, providing better elasticity. Currently, the overall valuation of Hong Kong stocks does not fully reflect the domestic economic recovery. From a credit perspective, credit demand from the domestic corporate sector may have already begun to recover. If this trend continues, improved domestic demand could become a new investment theme for Hong Kong stocks, helping to boost investor sentiment and bring more incremental capital into the market.
