Guotai Junan's Hong Kong stock investment strategy for the fourth quarter: Focus on growth-oriented stocks and long-term allocation of dividend assets at low levels.

Guotai Junan released a research report stating that the investment strategy for the fourth quarter is to focus on Hong Kong stocks with a growth style and allocate more dividend assets at low levels in the long term. The current market environment is similar to a "mini version" of the fourth quarter of 2022 and the direction of the breakthrough in the fourth quarter of 2023 is the decline of US bond yields. The profit side still needs more policy support, and it is expected that the rebound in this round may be weaker than the previous one. In the short term, overseas liquidity is improving marginally, and the focus during the rebound is on the growth style. In terms of indexes, the Hong Kong Hang Seng Technology Index is of interest, and in terms of sectors, attention is given to innovative drugs, electronics, semiconductors, internet retail, automobiles, and gold. In the medium to long term, dividend assets are allocated at low levels, and high-stability high-dividend varieties such as communication operators, energy, and utilities are favored. Guotai Junan's main points are as follows: Last week, Hong Kong stocks fluctuated and rose, with media, auto, software, and service sectors leading the gains. The US and China issued a statement, US inflation cooled down more than expected, and the Hong Kong Government implemented a reduction in stamp duty, multiple favorable factors boosted the sentiment of the Hong Kong stock market. In terms of pace, Hong Kong stocks soared on November 15th, and then sentiment gradually declined in the following two trading days. The Hang Seng Index rose 1.46% last week, and the Hang Seng Technology Index rose 2.25%. In terms of sectors, media, auto, software, and service sectors had the highest gains, while retail and durable consumer sectors performed poorly. The market is currently trading on the expectation that the Federal Reserve will stop raising interest rates. Historical experience shows that in the short term after the end of interest rate hikes, the stock market often rebounds rapidly. Whether to lower interest rates after stopping interest rate hikes depends on whether the US economy enters a recession. The first interest rate cut in the previous four rounds was often accompanied by signs of economic weakness. Prior to the end of the four previous interest rate hikes, the equity market showed a downward trend due to liquidity pressure. The improvement in liquidity after stopping interest rate hikes led to a rapid rebound in the stock market in the short term. The latest US inflation data is higher than expected, and the market is currently trading on the expectation that the Federal Reserve will end interest rate hikes. Whether the market can continue to rise in the short term after a rapid rebound depends on concerns about the economic outlook and the improvement in liquidity. The first interest rate cuts occurred on July 6, 1995, January 3, 2001, September 18, 2007, and August 1, 2019. Interest rate cuts were accompanied by signs of economic recession, such as slowing consumption and weakening job market. If the Federal Reserve starts a cycle of interest rate cuts, there is often a risk of a correction in the equity market within 1-2 months, mostly due to concerns about the US economy. During this period, the yields of US and Chinese bonds both declined, but Chinese bonds became relatively more attractive. Gold strengthened, and oil prices showed differentiation. 1) Equity: After the last interest rate hike, Hong Kong stocks and MSCI emerging markets showed an upward trend, but they quickly pulled back after the start of interest rate cuts. US stocks, Hong Kong stocks, and A-shares all have short-term correction risks within 1-2 months after interest rate cuts. 2) Bonds: US bond yields decline, Chinese bond yields also decline but to a lesser extent compared to US bonds. 3) Commodities: Gold generally strengthens after interest rate cuts, and oil prices show differentiation. 4) Hong Kong stock sector performance: In the three months after the end of the last two interest rate hikes, the industries with the highest growth rates in Hong Kong stocks were materials, telecommunications, and daily consumption. The investment strategy for the fourth quarter is to focus on Hong Kong stocks with a growth style and allocate more dividend assets at low levels in the long term. The current market environment is similar to a "mini version" of the fourth quarter of 2022, and the direction of the breakthrough in the fourth quarter of 2023 is the decline of US bond yields. The profit side still needs more policy support, and it is expected that the rebound in this round may be weaker than the previous one. 1) What to buy during the rebound in Hong Kong stocks? In the short term, overseas liquidity is improving marginally, and the focus during the rebound is on the growth style. In terms of indexes, the Hong Kong Hang Seng Technology Index is of interest, and in terms of sectors, attention is given to innovative drugs, electronics, semiconductors, internet retail, automobiles, and gold. 2) In the medium to long term, dividend assets are allocated at low levels, and high-stability high-dividend varieties such as communication operators, energy, and utilities are favored. In terms of space, the high point in early September 2023 may impose pressure on the short-term upward process of Hong Kong stocks. In terms of sustainability, the December domestic economic work conference and the Federal Reserve interest rate meeting are the next observation points. Risk factors: 1) Domestic policy for stabilizing growth falls short of expectations; 2) US core inflation exceeds expectations.