CMSC International: Marginal benefits of Hong Kong stocks are accumulating, AI dances with nonferrous metals.

CMSC International released a research report stating that in the short term, the fourth quarter will start suppressed and then rise. In the absence of incremental positive factors, the Hong Kong stock market may continue its volatile trend. However, subsequent marginal positive factors are expected to accumulate, driving the Hong Kong stock market upward: the booming development of the Chinese technology industry represented by AI, continuously achieving innovative breakthroughs; the possibility of the resolution of the China-US trade tariff issue; the discussion of the "15th Five-Year" plan at the Fourth Plenary Session of the CPC Central Committee, with potential increment industry policies that could bring expected improvements and boost risk appetite; the strengthening anticipation of a Fed rate cut, which could bring foreign capital into the Hong Kong stock market. In terms of allocation strategy, focus on four offensive sectors (non-ferrous metals, technology, electricity, insurance) and two defensive sectors (reverse turnarounds, dividends). CMSC International's main points include: Market factors: Favorable marginal fundamentals, policies, liquidity, and valuation factors provide strong support for the Hong Kong stock market Fundamentally, although China's macroeconomic is continuing to slow marginally and is in a deflationary cycle, the strong growth of the new economy represented by technology (31.7% profit growth in the semi-annual report) provides strong support for the stock market. In terms of policy, the US is escalating its threat of tariffs against China, but this turbulence may only be a short-term disturbance, constituting a typical TACO trade. China-US competition in technology, economy, and trade is inevitable in the long term, but both sides hold cards and are likely to de-escalate tensions. It is expected that the Renminbi exchange rate will remain stable, laying a stable foundation for investment in Chinese assets. It is expected that after the Fourth Plenary Session of the CPC, more measures will emphasize the effective implementation of fiscal and monetary policies. The "15th Five-Year" plan will introduce increment policies in areas such as technological innovation, national security, expanding domestic demand, and combating "involution," boosting market sentiment. In terms of liquidity, US inflation has moderated, and employment issues are core policy concerns. A "preventive rate cut" is necessary. The US government shutdown reinforces expectations of a rate cut. It is expected that the Fed will cut rates twice in the fourth quarter of this year and three times next year, by 25 basis points each time. The trend of net foreign capital inflow into the Hong Kong stock market is clear, but the process may be convoluted. Incremental Southbound funds are still in the process of entering the market and are expected to continue to provide support. The Hong Kong stock market is in a valuation trough. Core points: Start suppressed and then rise, opening up the upward space after volatility; long-term continuing trend of increase In the short term, the fourth quarter will start suppressed and then rise. In the absence of incremental positive factors, the Hong Kong stock market may continue its volatile trend. However, subsequent marginal positive factors are expected to accumulate, driving the Hong Kong stock market upward: the booming development of the Chinese technology industry represented by AI, continuously achieving innovative breakthroughs; the possibility of the resolution of the China-US trade tariff issue; the discussion of the "15th Five-Year" plan at the Fourth Plenary Session of the CPC, with potential increment industry policies that could bring expected improvements and boost risk appetite; the strengthening anticipation of a Fed rate cut, which could bring foreign capital into the Hong Kong stock market. In terms of structure, technology/AI and internet, as well as non-ferrous metals, continue to be recommended. The medium to long-term outlook is more optimistic. With improvements in the supply-demand landscape, the Chinese economic cycle is expected to reach a turning point in prosperity. Capital expenditure and research and development investment in the technology industry will gradually corporate profits, becoming a new growth engine. After the start of the Fed rate cutting cycle, with both China and the US implementing "dual loose" policies, Southbound funds and foreign capital will continue to flow in. Improved fundamentals in the future, combined with upward revisions of profit expectations and valuation restoration, will drive the long-term upward trend of the Hong Kong stock market, presenting a slow bull trend. Market style: Balanced between large and small caps, growth is favored; structural market features are evident In terms of style, with China's remaining liquidity on the rise, it favors small-cap stocks; foreign capital inflows favor large-cap stocks, under the influence of both forces, the balance between large and small caps is trending towards equilibrium. Considering the bottoming out of the economic cycle and the downward judgment of US bond rates, growth style is relatively favored. Allocation strategy: Four offensives (non-ferrous metals/technology/electricity/insurance) + two defensive positions (reverse turnarounds/dividends) In terms of structural allocation, it is recommended to adopt a strategy of "four offensives + two defensive positions": "Four offensives" focus on resilient sectors: Non-ferrous metals: Driven by the depreciation of the US dollar, low-interest rates, and liquidity. Gold is also driven by increased global political risks and central bank gold purchases. Copper mining benefits from supply constraints and demand growth driven by ShenZhen New Industries Biomedical Engineering. Technology stocks: China's AI industry is rapidly advancing, with high prosperity. It has become a new growth engine and is expected to continue to make breakthroughs. Companies in high-end manufacturing sectors like humanoid Siasun Robot & Automation, and autonomous driving are on the rise. Electricity: The "broom-selling era" of the AI revolution. Short-term focuses on controllable nuclear fusion themes and mirror the US market; the mid-term focuses on equipment exports; the long term focuses on power generation and grid construction. Insurance: The improvement in equity investment income brought about by the rise in the stock market, with significant undervaluation of Hong Kong stock insurance compared to A shares. The "two defensive positions" are suitable for long-term layouts and risk aversion. The "reverse turnaround" strategy focuses on essential consumption, which has experienced a turning point in supply and demand after four years of difficulties. Valuations are still at historical lows in the 20th percentile. Leading companies with outstanding competitive advantages can further increase market share and profit margins to achieve alpha growth. High dividend strategy: The Hang Seng High Dividend Yield Index has a dividend yield of 6.29% and stable dividend capabilities. With the increasing demand for Southbound funds and "fixed income+" products, driven by residents' deposits moving passively, the demand for dividend stocks continues to be strong. Risk warning 1) Federal Reserve monetary policy; 2) Significant fluctuations in liquidity; 3) Macro data and performance; 4) Geopolitics; 5) Black swan events.