CICC: Several Considerations on the Sharp Rise in Hong Kong Stocks Again

CICC released a research report stating that as of today (February 12, the close), the overall technicalities of the Hong Kong stock market are overbought (RSI is 74%), but the short selling turnover has decreased compared to the previous few days, indicating that some disagreements are diminishing or short positions are being forced due to the rise. The equity risk premium has dropped to 6.5% (it was 6.7% at the peak in May 2024, and 6% at the peak in October last year). Overall, the short-term sentiment is overbought, but certainly not at its extreme. The next two possible directions: first, continue with the structure, the industry narrative remains unchallenged, and it may just become a structural bull market. Second, further spread to the overall market, but it requires two conditions: 1) technological changes and solutions to the overall macro deleveraging and contraction issues, leading to a significant increase in total factor productivity and natural interest rates; 2) macroeconomic policy coordination to ramp up. CICC's main points are as follows: After a brief correction yesterday, the Hong Kong stock market surged again today, with property-related news in the afternoon boosting the performance of property stocks. The market is concerned about the potential upside, and combining some of the latest data, we have updated several pieces of information for everyone's reference. As of today (closing on February 12th), the Hong Kong stock market is overbought technically (RSI is 74%), but the short selling turnover has decreased compared to the previous few days, indicating that some disagreements are diminishing or short positions are being forced due to the rise. The equity risk premium has dropped to 6.5% (it was 6.7% at the peak in May 2024, and 6% at the peak in October last year). So overall, the conclusion that can be drawn is that the short-term sentiment is overbought. But is it extreme? Certainly not at its extreme, where the sentiment was in October, if we take the euphoria from the beginning of October, the Hang Seng Index corresponds to 23000 points, which is not impossible but challenging. Are there any foreign capital inflows? Currently, the data we have only covers until the end of last week (this week's data will be updated on Friday), and the conclusion is: long-term foreign capital (holding type, the most important) has not entered, short-term foreign capital (such as passive funds, trading funds) should have entered, but the biggest problem is that the latter is not sustainable, similar to the wave in late September. There are a few interesting things about this wave of increases, which are also misunderstandings. In fact, this time it is still a structural market overall, and it is a more extreme structural market, with only over 20% of stocks outperforming the index (924 quotes have over 60% of stocks outperforming the index). But relying on these small range stocks to drive the overall index higher and outperform A shares, the main reasons are: 1) the overall market capitalization is small; 2) There are more software and large companies in the Hong Kong stock market, which A shares do not have; 3) In terms of index construction, the Hang Seng series indexes artificially limit the upper limit of individual stock weights to 8%, which makes the impact of small and medium-sized companies on the index greater. The next two directions: first, continue with the structure, the industry narrative remains unchallenged, it may just become a structural bull market, similar to the smartphone and consumer electronics boom in 2012-2014, the semiconductor and new energy boom after 2019, or the seven sisters of the US stock market, but this requires continuous realization based on the industry. If not realized, it would either spread to peripheral speculations around this theme, or hold onto the large companies that are most likely to realize. Second, further spread to the overall market, but it requires two conditions: 1) technology changes and solves the overall macro deleveraging and contraction issues, leading to a significant increase in total factor productivity and natural interest rates; 2) macroeconomic policy coordination ramp up, such as similar to today's property news, but now with the popularity of AI and the relative mildness of tariffs, will this lead to a less urgent need for macroeconomic policies? This requires observation.