Soochow: Can the "air refueling" of Hong Kong stocks continue?

Soochow released a research report stating that they observed a broad spectrum of funds pricing in the Hong Kong market, such as city investment bond interest rates (junk bond interest rates), which have been decreasing continuously this year, following the direction of the decline in U.S. Treasury bond interest rates. In the future, if the Federal Reserve reopens interest rate cuts, the interbank interest rates in Hong Kong will fall, risk-free rates in Hong Kong stocks will decline, and Hong Kong stocks will rise. Soochow's main points are as follows: After reaching last October's high point, the Hong Kong stock market has not adjusted but has continued to rise, breaking the experience of the past three years. Can this "aerial refueling" continue? What catalysts can continue to drive the rise in the future? Rising leads to further rises. Based on past experiences, many investors either take profits or open large short positions when the Hang Seng Index reaches its previous high point. Once the market continues to rise, hedge funds may be forced to close their short positions, and investors who have taken profits may be forced to buy back in, further driving the rise. U.S. market decline. While most global investors continue to be bullish on U.S. stocks (the performance of the U.S. stock market in the past decade has eliminated all shorts), some investors are concerned about short-term volatility and decline in U.S. stocks. Some global investors have transferred their investments in U.S. stocks to other markets, including Hong Kong. However, they are still observing the earnings season that began in April. Historically, strong performance by U.S. companies in earnings seasons has resulted in good performance in the U.S. stock market. If the U.S. earnings season in April does not perform well, or after the earnings disclosure period, many investors may "sell in May and go away." These funds leaving the U.S. stock market may increase positions in Hong Kong stocks, leading to a rise. Benchmark interest rates are falling. Influenced by the Federal Reserve's pause in interest rate cuts, the interbank lending rates in the Hong Kong market remained high. However, the bank observed that the broad spectrum of funds pricing in the Hong Kong market, such as city investment bond interest rates (junk bond interest rates), have been continuously decreasing this year, following the direction of the decline in U.S. Treasury bond interest rates. In the future, if the Federal Reserve reopens interest rate cuts, interbank interest rates in Hong Kong will fall, risk-free rates in Hong Kong stocks will decline, and Hong Kong stocks will rise. Inflow of overseas funds. So far, nearly half of the net inflow of funds into the Hong Kong Hang Seng Technology Index has come from southbound funds. Overseas funds have not yet fully exerted their influence. In the future, if more data show that the Chinese macroeconomy is expected to bottom out in the second and third quarters of 2025, breaking free from deflation. Once CPI approaches 2%, PPI turns positive, and there are clear signals that corporate profits in 2025 will exceed those in 2024, a large amount of overseas funds will flow into the Chinese market, not just limited to the technology sector, bringing about a comprehensive rise in Hong Kong stocks. Historical experience shows that in the process of overseas funds flowing into Chinese assets, Hong Kong stocks perform better than Stock Connect, and perform better than A-shares. Risk warnings: 1) Economic recovery falls short of expectations: A slower-than-expected economic recovery may exacerbate market uncertainty; 2) Federal Reserve interest rate cut pace falls short of expectations: may have a negative impact on the funding situation of A-shares; 3) Geopolitical "Black Swan" events: affecting international capital flows.