China Galaxy Securities: Market risk preference declines, Hong Kong stock style transition accelerates.

China Galaxy Securities released a research report stating that this week (November 10th to November 14th), the performance of the three major Hong Kong stock indexes was mixed. The Hang Seng Index rose by 1.26% to 26572.46 points, the Hang Seng Tech Index fell by 0.42%, and the Hang Seng H-Share Index ETF rose by 1.41%. Looking at the secondary industries, this week saw daily consumer retail, paper and packaging, real estate, pharmaceuticals, and steel industries leading in terms of gains, while media, machinery, coal, electrical equipment, and semiconductor industries had the highest declines. Looking ahead, market risk preferences are becoming more cautious, internal hotspots are rotating faster, and Hong Kong stocks may continue their volatile trend. It is recommended to focus on the following sectors: the cyclical stocks that are benefitting from the "anti-interlocking" policy as the effects gradually manifest, and companies whose commodity prices are rising due to changes in the supply and demand landscape; the Federal Reserve's interest rate cut policy faces significant uncertainties, so investors may turn to dividend stocks as a defensive strategy. Key points from China Galaxy Securities: Hong Kong stock market performance this week 1. This week (November 10th to November 14th), most major stock indexes worldwide rose. Among them, the three major Hong Kong stock indexes showed mixed performance, with the Hang Seng Index rising by 1.26% to 26572.46 points, the Hang Seng Tech Index falling by 0.42%, and the Hang Seng H-Share Index ETF rising by 1.41%. 2. In terms of Hong Kong stock industries: among the primary industries, 7 industries rose this week, while 4 industries declined. The real estate, healthcare, and daily consumer industries had the highest gains, rising by 5.58%, 5.13%, and 4.74% respectively. On the other hand, the communication services, utilities, and industrial industries had the highest declines, falling by 1.19%, 0.86%, and 0.52% respectively. Looking at the secondary industries, this week saw daily consumer retail, paper and packaging, real estate, pharmaceutical, and steel industries leading in terms of gains, while media, machinery, coal, electrical equipment, and semiconductor industries had the highest declines. Liquidity in the Hong Kong stock market this week 1. The average daily turnover on the Hong Kong Stock Exchange was 233.18 billion Hong Kong dollars this week, an increase of 25.92 billion Hong Kong dollars from the previous week. The average daily short-selling amount was 28.55 billion Hong Kong dollars, a decrease of 11.07 billion Hong Kong dollars from the previous week; the average daily proportion of short-selling amount to turnover was 12.18%, a decrease of 0.61 percentage points from the previous week. 2. The cumulative net inflow of Southbound funds this week was 24.773 billion Hong Kong dollars, a decrease of 13.906 billion Hong Kong dollars from the previous week. Valuation and risk preference in the Hong Kong stock market 1. As of November 14th, the PE and PB ratios of the Hang Seng Index were 12.05 times and 1.24 times respectively, representing an increase of 1.53% and 1.44% from the previous Friday, and were at the 86th and 91st percentiles since 2019. The PE and PB ratios of the Hang Seng Tech Index were 22.47 times and 3.24 times respectively, at the 26th and 67th percentiles since 2019. 2. The yield on 10-year US Treasury bonds rose by 3 basis points to 4.14% from the previous Friday. The risk premium rate of the Hang Seng Index was 4.16%, which was 1.96 times the standard deviation of the 3-year rolling average, at the 4th percentile since 2010. The yield on 10-year Chinese government bonds decreased by 0.02 basis points to 1.814% from the previous Friday. As a result, the risk premium rate of the Hang Seng Index was 6.48%, which was the mean (3-year rolling average) -1.73 times the standard deviation, at the 42nd percentile since 2010. 3. The Hang Seng Shanghai-Hong Kong Stock Connect AH Share Premium Index rose by 0.06 points to 118.48 from the previous Friday, at the 12th percentile since 2014. Investment outlook for the Hong Kong stock market On the international front, on November 12th, US President Trump signed a temporary federal government funding bill passed by both houses of Congress at the White House, ending the historical 43-day federal government shutdown. This week, Federal Reserve officials turned hawkish in their statements, releasing a series of policy signals indicating ongoing concerns about inflation pressure, resulting in dampened expectations for a Fed interest rate cut and a decline in market risk appetite. Domestically, at the end of October, China's social financing stock increased by 8.5% year-on-year, M2 increased by 8.2% year-on-year, both down 0.2 percentage points month-on-month. M1 increased by 6.2% year-on-year, but decreased by 1 percentage point month-on-month. Several economic indicators for October showed a slowdown in year-on-year growth. China's industrial value-added growth in October was 4.9%, down from the previous 6.5%. Total retail sales of consumer goods amounted to 4.6291 trillion yuan in October, a year-on-year increase of 2.9%, down from the previous 3%. Fixed asset investment (excluding rural households) from January to October was 40.8914 trillion yuan, down by 1.7% year on year, and down by 0.5% from the previous value. Looking ahead, market risk preferences are becoming more cautious, internal hotspots are rotating faster, and Hong Kong stocks may continue their volatile trend. In terms of allocation, it is recommended to focus on the following sectors: 1) cyclical stocks that benefit from the gradual manifestation of the "anti-interlocking" policy and the continuous rebound of commodity prices due to changes in the supply-demand landscape; 2) the Fed's interest rate cut policy faces significant uncertainties, causing a decline in market risk appetite, so investors may turn to dividend stocks as a defensive strategy. Risk warning: risks of domestic policy measures and effects falling short of expectations; risks of overseas interest rate cuts failing to meet expectations; risks of unstable market sentiment.