CICC: What is the outlook for Hong Kong stocks after the pullback?

CICC released a research report stating that the sudden downward movement in the Hong Kong stock market last week was mainly due to external factors. What is the outlook going forward? CICC believes that short-term external disturbances are increasing, so caution should be maintained. It is not ruled out that further volatility may occur, but the oscillation pattern is still the benchmark assumption, so there is no need to be overly pessimistic. Firstly, from a technical perspective, the ratio of short selling transactions is on the rise, and the market is nearing oversold levels. The key support level is around 19,000 points on the daily, weekly, and monthly charts. According to CICC's calculations, if risk-free rates and earnings remain at current levels, the risk premium will rise to the average of 8.4% since 2024, corresponding to the Hang Seng Index at 18,000 points, assuming more significant impact expectations and the assumption of delayed policy hedging. Secondly, external disturbances are the short-term focus. The yield on the 10-year US Treasury is rising, and the US dollar is strengthening. More importantly, Trump's nomination of hawkish cabinet members has increased concerns in the market about policy risks after Trump formally assumes office in January next year, especially regarding tariffs. Before officially taking office, the "Trump trade" may still have some inertia, and theoretically, tariff policies can be immediately implemented through executive orders after he takes office. To mitigate the impact of tariffs, a 7-10% depreciation of the RMB against the US dollar may offset most of the negative effects of tariffs, but there may be limited room, the necessity for fiscal stimulus increases, requiring 2-3 trillion yuan in additional fiscal spending. Furthermore, domestic fundamentals and policy efforts remain key. The strong efforts of growth-stabilizing policies have boosted marginal improvements in October economic and financial data. However, from high-frequency data, there are signs of weakening in production, consumption, and real estate in the near term, requiring more incremental policy support. To address credit tightening, it is necessary to continue to lower financing costs and boost return expectations. A more effective approach would be direct fiscal intervention, with CICC estimating a need for 7-8 trillion yuan in additional bond issuance. However, the "real constraints" of high leverage, interest rates, and exchange rates mean that while incremental stimulus will be provided, overly high expectations are not realistic. Under the assumption of an overall oscillation pattern, shifting from a strategy of "gradually positioning on the subdued left side and moderately profiting on the euphoric right side" seems to be effective. In terms of industries, CICC suggests focusing on industries undergoing consolidation, receiving policy support, and offering stable returns.