Zhixin Finance learned that Tianfeng Securities released a research report stating that against the background of greatly improved sentiment among domestic and foreign investors, the Hong Kong stock market has triggered a relatively significant rebound. The subsequent sustainability and upward mobility await more solid basic data to match. In the benchmark scenario that the US economy may experience pressure to slow down over the next few quarters, the probability of a sharp correction in the US stock market may be low, as short-term market risk appetite remains high.

Tianfeng Securities' main points are as follows:

Hong Kong Stock Market: trading sentiment tends to be flat

1)Hong Kong stocks fluctuated and closed up, with cyclical sectors leading the market. From July 1st to 5th, there were signs of periodic stabilization in the Hong Kong stock market, and most broad-based indexes rose to varying degrees, but the market turnover is still relatively low compared to the previous period. The Hang Seng Index and the Hang Seng Technology rose by 0.5% and 1.2%, respectively. In terms of style, Chinese enterprises and large-cap factors outperformed, while the mid and small caps fell slightly. In terms of strategy, risk control indicators are superior to the Shanghai-Shenzhen-Hong Kong Stock Connect AH smart index and the GARP strategy. In terms of industry, cyclical sectors led the market represented by raw materials and energy, all of which rose by more than 4%. The industrial (-2.6%) and financial (-2%) sectors were the biggest decliners;

2) Basic economic fundamentals and broad liquidity support need to be improved. In June, China's manufacturing PMI recorded 49.5%, which was the same as in May and fell below the boom-bust line for two consecutive months, indicating that the economic recovery process still faces challenges. In terms of liquidity, since November 2023, the growth rate difference between foreign currency and Hong Kong dollar M3 has gradually widened, and the proportion of foreign currency assets in Hong Kong's banking industry has steadily increased from 61.5% last year to the current 63.3%, indicating that under the pressure of high short and long-term interest rates in the United States, Hong Kong's Hong Kong-dollar deposits and bank asset allocation combinations have shown a trend of going offshore, and internal liquidity contraction may have a negative impact on Hong Kong's broad assets;

3) The market sentiment tends to be flat, and the probability of a sharp rebound in the short-term index is highly limited. Since the Hang Seng Index reached its periodic peak on May 20, it has maintained a downward trend. From the perspective of market sentiment, the 14-day RSI index has steadily declined in the past month, and the 6-day RSI index has rebounded with limited height and short duration. In addition, the number of open positions in the Hang Seng Index has also fallen to the central level since this year, indicating that the market lacks the momentum to bet on future economic or policy expectations.

4) Looking ahead, against the background of greatly improved sentiment among domestic and foreign investors, the Hong Kong stock market has triggered a relatively significant rebound. The subsequent sustainability and upward mobility await more solid basic data to match. In terms of configuration, on the one hand, sectors such as utilities, energy, finance and telecommunications with relatively high dividend yields are expected to provide considerable relative returns in such an environment even if market volatility increases in the future; on the other hand, the technology industry represented by semiconductors and the Internet will still be the main driver of industrial transformation and will benefit from government support and domestic substitution.

US Stock Market: Labor market further confirms the pressure of recession

1) US stocks continued to rise, and the technology sector saw significant gains. From July 1st to 5th, the US labor market cooled down again, and the unemployment rate rose to 4.1% in June, higher than expected and the previous value. At the same time, the number of non-agricultural employment in April and May were both revised downward. The FedWatch showed that the probability of interest rate cuts in September increased to 77.9%. During the observation period, the S&P 500 and the Nasdaq reached new historical highs again, and the Dow Jones rose by 0.7%. In terms of style, growth and momentum factors performed well and rose by more than 3%, while high cash flow fell by 1.4%; in terms of strategy, style switching is better than multi-factor and GARP strategies. In terms of industry, the communication services (+3.9%) and information technology (+3.8%) sectors led the market, while the energy and medical sectors adjusted slightly;

The pressure of the US economic recession has increased. In June, the non-farm employment data deviated from May, although the newly added employment and unemployment rate deviated from the situation described by household surveys, the supply and demand pressure in the labor market is being eased. The GDPNow prediction model of the Atlanta Fed reduced the actual GDP growth rate forecast for the second quarter from 3.0% on June 21 to 1.5%, and the unexpected index of the US economy also weakened significantly during the same period, reflecting the market's pessimistic attitude towards the past and future economy. From the perspective of asset pricing, when the yield of US bonds in the long and short term is inverted, the US economy without exception falls into the recession range defined by the NBER within 6-24 months. As for whether the market's expectations of a rate cut in September can be realized, further confirmation of the recession trend through economic data in July and August is still required.

The US stock market is expected to continue its upward trend. The sentiment of the US stock market has not shown a lively state. It is reflected in the current fear and greed index of the US stock market that it is still at a neutral level, and other sentiment indicators such as market breadth and VIX are still low. Overall, investors' expectations of the external environment are relatively stable in the short term. The probability and amplitude of deep adjustments in the US stock market due to technical reasons may still be low. In addition, if the expectation of a rate cut continues to ferment, indicators such as US bond yields and credit spreads may further turn to loose, and the US stock market is also expected to receive more support in terms of liquidity.

2) On investment strategy, under the assumption of the benchmark of a slowdown in the US economy over the next few quarters, US stocks may come under pressure on a medium-term dimension, but the short-term market risk appetite remains high and the probability of a significant correction of the US stock market may be low. In terms of industry allocation, if the PMI of the manufacturing industry continues to decline, the defensive sector represented by public utilities may perform well; while the trend of the AI industry is still in the verification stage, it is important to focus on the configuration opportunities of some technology sub-sectors.

Risk warning:

The overseas liquidity is rapidly tightening; the risk of a hard landing of the US economy; and the complexity of the international situation.