To The Moon

I. Performance of Global Equity Indices (in US dollars)

Source：Bloomberg, 2024/05/06-2024/05/12

II. Key Market Themes

i. Favored by capital and entering the market in haste, how much further can the Hong Kong stock market rise?

•In the past month, the Hong Kong stock market has shown a remarkable increase, with both the Hang Seng Index$恒生指数(HSI)$ and the Hang Seng Tech Index $恒生科技指数(HSTECH)$ significantly outperforming other major global stock indices. Regarding this, opinions in the market vary. From a valuation perspective, the Hong Kong stock market is currently in a relatively low range. The forward price-to-earnings ratios (P/E ratios) of the Hang Seng Index and the Hang Seng Tech Index are 8.9 and 16.10 respectively, both around one standard deviation below historical averages, indicating considerable room for recovery.

•In terms of profitability, the earnings expectations for the next 12 months of the Hang Seng Tech Index have almost returned to the high point of 2021, led by industries such as software services and automobiles. Although the overall revenue growth of the Hang Seng Tech sector has slowed in the past two years, profits and free cash flow have improved significantly, with dividend ratios notably increasing and dividend yields currently at historical highs, boosting investor confidence.

•Data from Goldman Sachs trading desks shows that since April, global mutual funds have been accelerating their "bottom-fishing" in Chinese assets, particularly in Hong Kong stocks. We believe that the core logic of the Hong Kong stock market remains "Chinese economy" + "US currency". Currently, the Chinese economy is in a period of transition, and the US is also about to enter an interest rate reduction cycle. The most difficult periods for both have passed, and any improvement in either could be a positive factor for the continued rise of the Hong Kong stock market.

Source：Bloomberg

Source：Bloomberg

ii. US stocks have exceeded earnings expectations in Q1, and the scale of buybacks has significantly increased. Could the market be brewing opportunities?

•According to the FactSet report, as of recent, nearly 80% of companies in the S&P 500 $标普500(.SPX)$ index have announced their Q1 2024 financial reports. Among them, 77% of companies have exceeded EPS expectations, with an average deviation of about 7.5%, significantly higher than the average over the past decade. It is estimated that the earnings growth of the S&P 500 index in Q1 2024 is about 5.0%, which will be the highest year-over-year value in 22 years.

•However, interestingly, the market's response to this has not been enthusiastic. According to statistics, the average increase in stock price for companies that exceeded expectations is only 0.6% in the two days following the release of their financial reports, while companies that fell short of expectations experienced an average decrease of -3.3%. This also reflects investors' more conservative and concerned expectations regarding companies' future profitability.

•However, analysts have still raised the EPS expectations for the S&P 500 index in Q2 despite this. At the same time, the scale of buybacks by US-listed companies has once again increased. Currently, companies that have published their financial reports have announced a total of over $180 billion in buyback plans, representing a 16% increase year-over-year. Goldman Sachs even expects the total buybacks by S&P 500 companies this year to exceed $900 billion, surpassing $1 trillion next year.

•We believe that due to the intensified uncertainty in the macroeconomic environment, there are differences between "analyst expectations", "trader expectations", and "manager expectations". Traders are evidently more cautious and conservative, while analysts and managers are more optimistic. However, it is apparent that analysts and managers have access to more information, so this could be an opportunity the market is offering at this time.

Disclaimer

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