With the domestic economic stability policy stepping up, the Hong Kong stock market has seen a significant rebound since the end of September. During the National Day holiday, the Hong Kong stock market rose continuously, with only a slight pullback on October 3. Despite the market seeing another pullback since October 8, industry experts generally believe that the upward trend of the Hong Kong stock market remains unchanged, and the rebound space is opening up.
Specifically, in terms of monetary policy, reserve cuts and interest rate reductions support stable economic growth, with policy releases signaling positive liquidity. In the real estate sector, the reduction of existing home loan rates is promoting a stable and healthy development of the real estate market. In the capital markets, the introduction of two structural monetary policy tools supports stable development of the capital markets.
The increase in positive domestic policies boosts market confidence, as the Fed's rate cuts and domestic reserve cuts combine to further boost liquidity. Valuations may gradually rise, and after a short pullback, the Hong Kong stock market outlook is promising.
Multiple factors are driving the expansion of stock valuations, and risks of market pullbacks need to be monitored.
Looking back on the start of the bull market in the stock market, policies have played a crucial role. Pre-holiday policy measures have boosted the performance of the Hong Kong stock market. During the National Day holiday, downstream sectors such as consumer, real estate, and high technology in the Hong Kong stock market performed well, indicating favorable real estate policies and improved holiday travel sentiment. From September 24 to October 4, the Hang Seng Index had a cumulative increase of 24.61%, significantly outperforming the same period last year, and was the best performer among the global asset classes.
Funds from overseas markets may have a significant boosting effect. Since the Fed's rate cut in September, overseas market liquidity has been released, providing additional support to the liquidity pool of the Hong Kong stock market. With frequent positive signals released on the domestic policy side, overseas funds may enhance their willingness to allocate assets in China. Furthermore, based on Federal Reserve Chairman Powell's remarks on October 1, there may be two more rounds of Fed rate cuts this year, with subsequent funds expected to continue to be released, supplying 'ammunition' for the Hong Kong stock market.
In terms of turnover, during the National Day holiday (October 2 to October 4), the trading volume in the Hong Kong stock market far exceeded historical levels, with the short selling ratio at a historic low. It increased by 537.6% and 562.2% compared to the same period in 2023. This trading volume is the highest level in the past 7 years and significantly higher than the average level of 89.5 billion Hong Kong dollars per day in 2024.
It is worth noting that based on historical trends, after a rapid upward trend in the short-term market, the first phase of risk appetite recovery has been relatively complete. The market tends to transition to a volatile upward trend, during which some funds may take profits, leading to a pullback in some stocks with high gains. Therefore, it is important to be cautious of short-term risks and not chase high prices excessively.
Looking ahead, the current rise in the domestic stock market is driven by policy expectations, fund support, and market sentiment resonance, creating a 'flowering' effect. In order for the risk appetite in the market to further improve, fundamental changes and policy implementation are needed, requiring more time to support overall economic recovery. If certain data shows positive changes, market expectations will become optimistic, and the performance of specific sectors may be promising.
After a pullback, there may be a sector rotation, focusing on opportunities for quality enterprises to make up for gains.
Currently, the valuation of the Hong Kong stock market remains in a relatively high cost-effective range after a rapid rise. As of October 7, the Hang Seng Index's PE ratio is only 10.28 times, above the median since 2010. Compared horizontally with global markets, the Hong Kong stock market still has enough profit potential to attract global capital inflows. Therefore, confidence in the market should be maintained, and adjustments should be seen as opportunities to buy low until further valuation recovery in the Hong Kong stock market.
As the first round of market gains comes to a temporary halt, the emotional market will transition towards a more rational market. Traditional institutional investment funds will take over from retail funds dominating the market, so the subsequent market gains may not be as aggressive as before, and market volatility may decrease. Additionally, the logic of stock price increases will shift from pure emotion towards a focus on the fundamentals of individual stocks, with fundamentally strong small and mid-cap stocks set to benefit from a surge. Stocks with good quality symbols and low valuations may receive more attention in the next phase.
Combining the observation of market capitalization fluctuations, during the period from September 27 to October 4, the Hang Seng Composite Level 1 industries in medical care, non-essential consumer goods, real estate construction, consulting technology, and nengyuanhangye have seen significant gains, while the materials industry, comprehensive enterprises, telecommunications industry, and utilities have shown lower gains. With the start of the market correction, the sector rotation driven by fund flows may present better allocation opportunities for sectors that had lower gains in the previous period after the pullback.
Taking the example of Global New Mat (06616.HK), which is involved in the pearl pigment industry in the new materials sector, the individual stock achieved a 20.4% increase in the 9 trading days after the 9.24 policy and maintained a continuous rise for 9 consecutive days. Although the increase is lower than the market index, compared to the high retracement risk associated with high increases, the company, with a stable growth path and solid fundamentals, has a greater risk resistance capability and potential for further upside.
The company's mid-term performance has been good, with remarkable increases in revenue and profit in the 2024 interim report reaching 66.8% and 52.7% respectively. Its operating gross margin is as high as 50.1%, an increase of 1.7 percentage points from the same period last year, indicating a favorable growth trend. In addition, in July, the company announced the acquisition of a well-known overseas company, Merck Surface Solutions from Germany, which will pave the way for global trade and globalization. Against the backdrop of overseas capital flowing into the Hong Kong stock market, the company's market attention may further increase.
It is worth mentioning that the actual controller of the company, Su Yantian, actively increased his holdings by 3.227 million shares from October 2nd to 4th, investing approximately 14.4 million Hong Kong dollars, fully demonstrating the management's firm confidence in the company's prospects. The actual actions of the management themselves often serve as the most powerful endorsement of the company's value. The increased holdings by the actual controller not only inject confidence into the market but also indicate a clear strategic direction that the company's top management has for the future.
Short-term fluctuations will not alter the long-term value of an enterprise. Although some small-cap stocks have shown moderate performance compared to the recent market gains, steady business growth and the steadfast confidence of the management will serve as a solid support for such companies, providing them with greater growth potential after market corrections. Small-cap stocks like Global New Mat International may experience short-term underperformance due to market fluctuations, but with steady business growth and strategic vision, they are bound to bring substantial returns to shareholders in the future.