CICC: Southbound funds accelerate flowing into Hong Kong stocks, stocks with solid fundamentals remain a stable choice.

China Golden Strategy Analyst Liu Gang pointed out that after entering September, the volatility of A-shares has increased "as expected", and Hong Kong stocks, which have been quiet for a long time, seem to have taken over the "baton" again. The Hang Seng Index has exceeded the 26,000-point mark, and the southbound capital flow has accelerated once again. After the recent upward trend, the overall risk premium of Hong Kong stocks has further decreased to 5.1%, the lowest since the beginning of 2018. Economic and financial data for August has been released one after another, and market debates have intensified. Should we focus on the weak fundamentals or continue to focus on liquidity? It is recommended to first observe the Fed's interest rate cut, as there may be differentiation after the rate cut, as the parts supported solely by emotions and liquidity have already been realized. In the medium term, sectors with strong fundamentals are still a stable choice. Additionally, sectors that may "lose time" in the short term but "not lose space" in the medium term can also be considered. Key points from China Golden are as follows: 1. Foreign capital inflows according to EPFR's criteria (up to Wednesday): Active foreign capital has flowed into A-shares for the fourth consecutive week, but the inflow has continued to decrease to $15.21 million (compared to $17.64 million last week). In the past four weeks, a total of $144 million has flowed into A-shares, but this is still less than the $370 million that flowed in for two consecutive weeks in early October last year. Moreover, after a 5-week hiatus, Hong Kong stocks and ADRs have once again seen inflows of $64.02 million (compared to outflows of $110 million last week). Passive foreign capital, on the other hand, has turned to outflows, with $570 million flowing out of Hong Kong stocks and ADRs (compared to inflows of $900 million last week), and $760 million flowing out of A-shares (compared to inflows of $330 million last week). 2. Acceleration of southbound capital inflows. This week, southbound capital has flowed into Hong Kong by $60.82 billion (compared to $33.06 billion last week), with a daily average inflow of $12.16 billion (compared to $6.61 billion last week). At the individual stock level, the highest net increase was for Alibaba, Semiconductor Manufacturing International Corporation, Horizon Siasun Robot & Automation, and INNOVENT BIO. After entering September, the volatility of A-shares has increased "as expected", and Hong Kong stocks, which have been quiet for a long time, seem to have taken over the "baton" again with the Hang Seng Index surpassing the 26,000-point mark and southbound capital inflows accelerating once again. This is because, on the one hand, the Fed's interest rate cut is approaching, making "loose trading" the short-term focus, as seen in the rise of US bonds and gold, as well as new highs in surrounding Japanese and Korean markets. Hong Kong stocks usually have greater flexibility, especially since CKH HOLDINGS has confirmed a small interest rate cut. On the other hand, AI technology has returned to the spotlight due to the catalysis of leading US stocks, while funds from some innovative drugs have also rotated out due to sanctions concerns. We have previously indicated that for Hong Kong stocks to effectively surpass the 26,000-point mark, they need support from profit increases in general (which is difficult to see in the short term, as the fundamentals are still weak, and there may even be a further weakening in the fourth quarter); and from the cooperation of the internet sector in terms of structural factors, as the risk premium of other sectors is already very low. The recent performance validates this current trading strategy for Hong Kong stocks. After the recent upward trend, the overall risk premium of Hong Kong stocks has further decreased to 5.1%, the lowest since the beginning of 2018. As economic and financial data for August has been released one after another, market debates have intensified. Should we focus on the weak fundamentals or continue to focus on liquidity? We suggest first observing the Fed's interest rate cut on September 18th, as there may be differentiation after the rate cut, as the parts supported solely by emotions and liquidity have already been realized. In the medium term, sectors with strong fundamentals are still a stable choice. These include sectors with improving fundamentals such as innovative drugs, technology hardware, non-ferrous metals, non-banking financial institutions, and consumer electronics; as well as sectors in the China-US reflection chain, such as AI, Siasun Robot & Automation, and the fruit chain, as well as tools, home furnishings, and furniture related to the US real estate chain, and investment-related non-ferrous metals and machinery. Additionally, sectors that may "lose time" in the short term but "not lose space" in the medium term can also be focused on, such as banks and even long-term government bonds, even the internet sector two months ago.