Huatai | Hong Kong Stock Strategy: Focus on supply chain and cash flow stability

Huatai Securities pointed out that the current market is characterized by volatility. On one hand, uncertainties in the Middle East conflict still exist, and the opening of the market's upward space needs to wait for developments, with a focus on changes in the air traffic status and expectations of a Fed rate cut. On the other hand, our Hong Kong stock sentiment index has been operating in the panic zone for some time, and the gradual release of downward market risks is in place. Structural adjustment is the key focus at this stage, and we have two suggestions. First, the current market may still not fully price in the downgrade of growth, so it is recommended to continue maintaining a defensive position and focus on operating dividend stocks, such as banks, railways, highways, and local utilities in Hong Kong. Attention should be paid to the risks of crowding and increased volatility in cyclical dividend stocks such as oil and gas. Second, optimize the holding structure by rebalancing both domestic and foreign demand. Reduce allocations to optional products with large external demand exposure from Asia and Europe, such as consumer electronics. Continue to hold mid-term advantages in the Chinese midstream manufacturing and broader energy supply chain that may not decline but rise with external demand. Increase allocations to internal consumer sectors with relatively sufficient expectations downgrades, such as dairy products, for part of the chip clearing.