China Securities Co., Ltd.: The advantages of Hong Kong stocks over A shares are becoming increasingly prominent, optimistic about the overall market situation of Hong Kong stocks.

China Securities Co., Ltd. released a research report stating that as of the end of June, the performance of A-shares in the stock market was more outstanding compared to the Hong Kong stock market, with lower attention on Hong Kong stocks. However, since entering September, A-shares have entered a consolidation period with increasing volatility, while the attention from both domestic and foreign funds on Hong Kong stocks is rising. The company believes that in the subsequent period, the advantages of Hong Kong stocks over A-shares will become more prominent, and they are bullish on the overall performance of Hong Kong stocks. They suggest focusing on core growth sectors of Hong Kong stocks, especially internet, innovative pharmaceuticals, new consumption, and technology sectors, and also consider dividend defensive configurations. Key viewpoints from China Securities Co., Ltd. are as follows: The current long-term bull market in Hong Kong stocks was established in the fourth quarter of last year and is now in the middle stage. 1) The liquidity cycle is currently in the middle phase, and the overall tone is expected to remain loose for the next 1-2 years. 2) Valuation cycle: After experiencing a three-year bear market, valuations of Hong Kong stocks were low, but they have been consistently recovering for over a year and are now in the upper-middle range. 3) Earnings cycle has just begun to rebound from the bottom. The main earnings recovery is concentrated in structurally prosperous sectors. The Federal Reserve has recently paused interest rate cuts, and overseas liquidity tightening has become one of the biggest pressures on Hong Kong stocks. However, with US employment data being significantly lower than market expectations in the past two months, expectations of rate cuts have increased significantly. Subsequently, the macro liquidity for Hong Kong stocks is expected to be quickly relieved, which will help in the valuation recovery of Hong Kong stocks. The earnings growth of Hong Kong stocks currently relies mainly on prospering sectors, with clear differentiation in earnings recovery structures. Sectors like raw materials, healthcare, information technology, and non-essential consumer goods have higher earnings growth rates and provide the main profit increments. On the other hand, real estate, energy, and conglomerates are still facing profit losses, causing a slow overall valuation recovery of Hong Kong stocks. It is advisable to focus on prosperous sectors. Since the slow bullish market since June, there have been continuous declines for three days at the beginning of September, marking the first significant weekly adjustment and the first consolidation period for A-shares. This is mainly due to overheated trading in the previous period, high concentration of trading structures, and declining risk preferences. The A-shares are expected to experience volatility and adjustment during the consolidation period, while the catalysis of prosperous sectors in Hong Kong stocks may once again highlight the asset advantages of Hong Kong stocks. Since June, the Hong Kong Monetary Authority has intervened in the market for Hong Kong dollars for the 7th time, with the total intervention equivalent to 70% of the hot money inflows from May. It is expected that as the Federal Reserve cuts interest rates and the Hong Kong-US interest rate spread significantly narrows, the probability of touching the weak-side guarantee in the short term is not high, and liquidity tensions may ease. Additionally, foreign funds continue to increase their positions in the Hong Kong stock market and Chinese assets, suggesting that they are expected to continue to flow into Hong Kong stocks. As for the southbound funds, Alibaba's earnings exceeding expectations have made it the top net inflow stock for southbound funds for several days. At the same time, due to the consolidation period in A-shares and the increase in risk, the overall southbound fund inflows have accelerated since August. Both domestic and foreign funds are expected to continue flowing into Hong Kong stocks. With A-shares currently in a consolidation period and the advantages of Hong Kong stocks becoming more evident, the overall outlook for Hong Kong stocks in the near future is bullish. It is recommended to focus on core growth sectors of Hong Kong stocks, especially internet, innovative pharmaceuticals, new consumption, and technology sectors, and also consider dividend defensive configurations. Risk Warning: Geopolitical risks; Overseas Federal Reserve tightening beyond expectations; Implementation of stable growth policies falling short of expectations.