Guotai Junan: How will the Hong Kong stock market evolve after the US election?

Guotai Junan released a research report stating that after Trump takes office as the President of the United States in 2025, China-US trade may continue to negotiate. Unlike in 2018, the Hong Kong stock market is currently priced and the valuation level of Hong Kong stocks is at a low level compared horizontally. In addition, the current level of inflation in the United States is still high, and the tariffs advocated by the Trump administration may need to be slowly implemented. As major overseas central banks continue to cut interest rates, the constraints on the denominator side of the Hong Kong stock market are turning looser. On the profit side, the stabilization and rebound of the domestic economy remain a long-term certainty trend. Guotai Junan believes that the Hong Kong stock market is mainly upward. In terms of industry allocation, it continues to recommend Hong Kong stocks in the telecommunications sector such as NETDRAGON with improving EPS. It also recommends interest-sensitive industries that benefit from policy support, economic recovery or have resilient attributes, including pharmaceuticals, electronics, automobiles and new energy, as well as fair-priced consumption. Stable profit industries with high dividends, including utilities, finance, real estate chains, and telecommunications. The US dollar is temporarily strengthening, and the Hong Kong stock market is under short-term pressure. Looking back at the performance of the Hong Kong stock market after Trump was elected President of the United States in 2016, the Hong Kong stock market mainly experienced three stages, driven by factors such as domestic corporate profit improvement, China-US trade friction disturbances, and global central bank monetary easing after the epidemic. At the beginning of Trump's election, the Hong Kong stock market benefited from the improvement in domestic profits, and the suppression effect of overseas rate hikes was limited. As a result of the structural reform of the domestic supply-side "three reductions, one drop, one supplement", industrial profits have increased year-on-year and corporate performance has improved. In addition, due to policies like the monetization of shantytown redevelopment, real estate sales data has warmed. In terms of expanding domestic demand and increasing employment, frequent national meetings have proposed the construction of a combination of "Internet + logistics" in the consumer end. Internationally, in the early stages of Trump's election as President of the United States in 2016, international trade frictions had not yet escalated rapidly. The Hong Kong stock market continued to rise, with the best performance from industries such as internet technology, real estate construction, raw materials, and finance. China-US trade friction began to heat up in 2018, coupled with domestic deleveraging regulation, resulting in a volatile market in the Hong Kong stock market. The Trump administration imposed tariffs on imported steel and other goods in March 2018, and subsequently implemented multiple rounds of tariff increases on Chinese goods, leading to an escalation in China-US trade friction. Domestically, weak domestic demand and economic slowdown caused the Hong Kong stock market to enter a sideways and volatile market. The domestic counter-cyclical adjustment focus shifted from real estate to manufacturing, with industries related to the Hong Kong stock market, utilities, and telecommunications performing well. With the signing of the China-US economic and trade agreement and a cooling of trade tensions, combined with global monetary easing due to the outbreak of the pandemic, domestic policies supporting the expansion of domestic demand, the Hong Kong stock market continued to rise. In mid-January 2020, the first phase of the China-US economic and trade agreement was signed. In addition, the rapid spread of COVID-19 globally caused darkening economic prospects overseas, dragging down the Hong Kong stock market. Subsequently, major central banks initiated quantitative easing policies, leading to significantly looser liquidity overseas. In late March 2020, China proposed the "dual circulation" strategy combined with measures to expand domestic demand, improving confidence in China's economic recovery, and the Hong Kong stock market continued to rise; sectors such as internet, consumption, raw materials, industry, and healthcare showed strong performance. Risk factors: The progress of domestic economic recovery falls short of expectations; international geopolitical events escalate; fluctuating expectations of overseas recession.