Business Strategy: Liquidity Drives New Round of Hong Kong Stock Rally Focus on Three Offensives + Two Bottoms

CMSC released a research report stating that in the short term, the Hong Kong stock market is still mainly driven by liquidity, and with ample domestic and foreign liquidity, Hong Kong stocks are expected to usher in a new round of gains. From the mid-term report data of Hong Kong stocks, the growth rate of corporate performance is at a historically low level, with a clear differentiation between the new and old economic structures. The structural market led by technology has a solid profit support. The allocation focus is on three attacking sectors (technology, non-ferrous metals, non-banking) + two bottom sectors (distressed turnaround, dividends). Key points from CMSC: Core views on the Hong Kong stock market in September. In the short term, the Hong Kong stock market is still mainly driven by liquidity, and with ample domestic and foreign liquidity, Hong Kong stocks are expected to usher in a new round of gains. In September, factors restricting liquidity have eased: 1) the Federal Reserve's rate cut is progressing; 2) the tight funding issue in the Hong Kong market has eased; 3) Southbound funds continue to flow into the Hong Kong stock market; 4) with the mid-term reports released, profit concerns have been dispelled. In the medium to long term, with the improvement of supply and demand dynamics, the stabilization and recovery of the economy, a turning point in demand prosperity may be welcomed, and the profits of listed companies are also expected to bottom out and reverse. As a global valuation bargain, Hong Kong stocks have a lot of room for valuation repair. Fundamentals and policies: The weak recovery trend continues, with an emphasis on policy implementation. The growth rate of corporate performance in Hong Kong is at a historically low level, and the differentiation between the new and old economic structures is evident. China continues to implement a more proactive fiscal policy and moderately loose monetary policy stance, emphasizing the implementation and effectiveness of policies. Industrial policies focus on "artificial intelligence+", with relevant action opinions issued by the State Council, entering an accelerated period of cultivating new productive forces. Liquidity and valuation: Joint support from domestic and foreign funds highlights the advantage of valuation bargain. The dismal August non-farm employment data in the U.S., significantly lower than expected, raised the unemployment rate to a nearly four-year high. Interest rate cuts in September have become more certain, with a cumulative 75bps cut during the year becoming the benchmark scenario. Southbound funds continue to flow in, with net inflows exceeding HK$1 trillion during the year, and the trading volume accounting for around 30%, becoming an important support for the market. Local liquidity in Hong Kong tightened briefly in August, with HIBOR rising rapidly. However, with the stabilization of the Hong Kong dollar exchange rate and the Hong Kong Monetary Authority pausing net withdrawals, liquidity is marginally improving. Allocation strategy: Three attacking sectors (technology, non-ferrous metals, non-banking) + two bottom sectors (distressed turnaround, dividends) The "three attacking" strategy focuses on resilient sectors. Technology stocks: Internet giants' mid-term reports have been released, with limited impact on AI investment from the food delivery wars, expanding capital expenditures for growth, and promising high growth in the future. The high-end manufacturing sector has sustainable growth potential. The Hang Seng Technology Index valuation is only half of NASDAQ's, with room for repair. Non-ferrous metals: Driven by the triple factors of USD depreciation, low interest rates, and liquidity, there is still upward elasticity. Gold also benefits from its safe-haven attributes and central bank gold purchases. Non-banking financial institutions with increased beta: Stockbrokers in the Shanghai and Shenzhen stock markets have hit historical highs in daily trading volumes and margin trading; insurance stocks benefit from the improvement in equity investment returns and interest rate spreads, and exhibit a significant discount compared to A-shares. The "two bottom" strategy is suitable for long-term layout. "Distressed turnaround" strategy: Represented by essential consumption, the industry has experienced a downturn for 4 years and is now showing signs of a turning point in supply and demand. However, valuations are still at historical lows of the 20th percentile. Leading companies with strong long-term competitive advantages can increase market share and profit margins for alpha growth. High-dividend strategy: The Hang Seng High-Dividend Yield Index has a dividend yield of 6.12%, with stable dividend ability. With the increasing demand for "fixed income+" products driven by the growing Southbound funds, the demand for dividend stocks continues to be strong as residents move their savings passively. Risk warning: Unexpected monetary policy tightening by the Federal Reserve, and unexpected overseas policy tightening.