The Zhitong Finance App learned that Dongwu Securities released a research report saying that judging from the technical pattern, the Hong Kong market series indices all seem to have broken out of the triple or quadruple bottom. If you look at the growth rate of transaction amount and profit (corporate revenue and profit), combined with the US dollar entering a cycle of interest rate cuts, many indicators point to the Hong Kong stock market index falling out of the bottom, which may have leading and guiding significance for A-shares.

1. Trading Perspective: Hong Kong Stocks Have Seen Land Volume and Land Prices

At the level of securities trading, the low exchange rate for stocks often coincides highly with the low stock price. Looking at the turnover rate of Hong Kong stocks within a 12-month rolling time frame, the short-term low has passed, which indicates that Hong Kong stock prices have also passed the low point.

The most recent “land volume and land price” reference case for Hong Kong stocks was in 2022. At that time, the Hong Kong stock turnover rate fell to the third quarter of 2022 and then rebounded, and the stock price rebounded accordingly. In the past three months, the daily turnover of the Hang Seng Index was low in August, about 30 billion yuan. The turnover rate was about 0.25% (transaction amount/free circulation market value), close to the low level of the third quarter of 2022 (0.21%). After that, the turnover rate slowly rebounded, and the stock price rebounded accordingly.

2. Profit Perspective: Hong Kong Stock Companies May Have Passed the Low

Despite macroeconomic challenges, bottom-up corporate profits recovered in 2024. Compared to A-share companies, Hong Kong stock companies have fewer real estate industry chains and more Internet components. The Hang Seng Index's revenue and net profit to mother grew at -0.5% and +3.1% year-on-year respectively in the first half of 2024, which is a marked improvement over the full-year growth rate of 2023 (-4.0% year-on-year revenue and +0.8% year-on-year net profit).

3. The US Dollar Interest Rate Perspective: Reduced Valuation Pressure

Looking back at the Fed's interest rate cut cycle since 2000, Hong Kong stocks will rebound between the end of the rate hike and the first rate cut. In the process of subsequent interest rate cuts, apart from the 2008 financial crisis, which had a major impact on fundamentals, Hong Kong stocks all rose.

1) The liquidity environment for Hong Kong stocks will improve: the trend narrows between China and the US after the Federal Reserve starts cutting interest rates, the RMB is expected to appreciate, and the attractiveness of RMB assets will increase.

2) The Hong Kong stock market valuation will be repaired: as of September 17, the PE-TTM of the Hang Seng Index was 8.67X, which is at the historical quantile level of 11.3% over the past 10 years; the PB of the Hang Seng Index is around 1X.

3) Corporate profits can also be improved: the Fed's interest rate cut will reduce corporate financing costs and stimulate economic activity. On the other hand, the decline in US dollar interest rates is also expected to open up space for domestic economic stimulus policies and accelerate the pace of fundamental recovery.

4. Funds from some local families in Hong Kong seem to be flowing back to Hong Kong

Dongwu Securities noticed that some traditional local Hong Kong stocks, including Changhe (00001), Electric Energy Industries (00006), Changjiang Infrastructure Group (01038), and Henderson Land (00012), contributed greatly to the bottom of the Hong Kong series of indices. Stock prices and trading volume have risen markedly. It is speculated that this is the result of a partial return of capital. If this is true, these funds will also help the Hong Kong market to become more active.

5. Hong Kong stocks generally bottomed out at the same time or ahead of A-shares and rebounded

Judging from the historical trends of the Hang Seng Index and the Shanghai and Shenzhen 300, the two are basically the same. The inflection point of the Hang Seng Index's rebound usually occurs before or at the same time as the Shanghai and Shenzhen 300, for a maximum period of no more than 2 months. For example, Hong Kong stocks bottomed out in late January 2024 and began to rebound immediately after the central bank released the February downgrade signal. A-shares did not begin to bottom up until the downgrade in early February; similarly, in March 2022, Hong Kong stocks bottomed out first, then bottomed out at the end of April; furthermore, in February 2016 and March 2020, the two basically bottomed out at the same time.

Currently, Hong Kong stocks have broken out of the bottom zone, and it is expected that A-shares will soon reach an inflection point and rebound from the bottom.

Risk warning: history does not represent the future; statistical errors in third party data; policy incentives exceed expectations