As 2023 is coming to an end, it has not been a good year for Hong Kong stock investors. The sluggish market has resulted in negative returns for most investors.
According to relevant trading software, out of nearly 3,000 stocks in the Hong Kong stock market, more than half of them have low trading volumes or even no trading volume. The Hang Seng Index fell by 14% in 2023. In the IPO market, the number of listed companies was less than 80, a significant decrease compared to the previous year, and the proportion of stocks that fell below their issue price exceeded 30%, leading to a 26% decline in the secondary stock sector. However, even in a poor investment environment, there are sectors and individual stocks that have achieved excess returns.
Now let's take a look at the performance of various sectors in the Hong Kong stock market this year, as well as the best-performing individual stocks that have achieved higher excess returns.
Sector differentiation, &#34;technology and innovation&#34; favored
Looking at the global capital markets in 2023, the major stock indices in most European and American countries have risen by more than 10%, and the majority of Asian countries have seen gains of over 15%. For example, the Nikkei 225 Index rose by 28%, and the Korea Composite Stock Price Index rose by 19%. The most impressive performance was seen in the SENSEX Index in Mumbai, India, which has risen for eight consecutive years and doubled its index. The A-share market and the Hong Kong stock market lagged behind the Asian capital markets. The overall performance of the Hong Kong stock market was mediocre, but there were some sectors that performed well.
Zhitong App observed that in 2023, there were still more than 10 sectors in the Hong Kong stock market that recorded gains. The resource sector had a relatively large distribution, with the telecommunications equipment sector, computer and peripheral equipment sector, and oil and gas producers sector leading the gains with increases of 60%, 58%, and 41% respectively. However, there was significant differentiation among individual stocks within these sectors. For example, in the telecommunications equipment sector, only 32% of stocks recorded gains, and the proportion was only 35% in the computer and peripheral equipment sector.
In a weak market, stock prices are highly sensitive to policies, events, performance, and valuations. For example, the price of gold soared this year, driving up the gold sector due to safe-haven sentiment. With the implementation of education policies, a large number of undervalued higher education and training stocks emerged this year, such as New Oriental Education, which saw a surge of up to 94% driven by its transformation into online education. In the wave of automotive intelligence, intensified price wars and accelerated new car release cycles, new forces in the car manufacturing industry such as Xiaopeng Motors, NIO, and Leapmotor have received favorable funding.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231230/1703904131777902.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image 4.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231230/1703904131777902.png"/>
On the other hand, in declining sectors, the tourism sector saw a nearly 50% decline mainly due to lower-than-expected release of tourism demand. The real estate developers sector also experienced a nearly 30% decline, as the real estate industry faced frequent setbacks with significant losses and no improvement in sales, despite loose policies. However, even in underperforming sectors, a few individual stocks stood out, such as the real estate developer, Wharf Real Estate Investment Company, which recorded a 11% increase.
The market is differentiated, and there is also differentiation within sectors. Therefore, choosing the right industry is important, but selecting the wrong individual stocks can still result in losses. However, the market favors &#34;technology and innovation&#34; stocks, especially the industry leaders, such as the recently listed autonomous driving leader, ZhiXing Auto, which has seen a more than 30% increase in the past four days.
In fact, Hong Kong is implementing a &#34;tech+&#34; industrial transformation policy and actively introducing tech-related targets, giving the green light in the capital market to attract value investors who prefer &#34;technology&#34;.
It is worth mentioning that the Hang Seng Tech Index is composed of leading companies in various &#34;tech+&#34; industries, with a total of 30 constituent stocks. The minimum market value is over HKD 10 billion (Wind data), and the maximum market value exceeds HKD 2.7 trillion (Tencent). In 2023, 9 targets recorded an increase in market value, with the top performers including NIO Inc. (02015), Lenovo Group (00992), BYD Electronics (00285), and XPeng Inc. (09868), with increases of 91%, 81%, 47%, and 44% respectively.
Lenovo Group has become the most prominent &#34;star stock&#34; in the Hang Seng Tech sector in 2023. Lenovo is a global leader in AI and computing power, maintaining a market share of around 24% in the PC market. Under its 3S intelligentization strategy, both its PC and non-PC businesses have maintained growth, driving steady performance growth. This year, the company's AI products have performed exceptionally well, and all its businesses have entered the era of comprehensive AI. Its AI PC products have even set industry precedents.
As a leader in the &#34;tech+&#34; sector, Lenovo has achieved excess returns. In 2023, Lenovo achieved a return of over 80%. However, if we look at a longer time frame, the company has ignored the macroeconomic cycle and has been in a six-year trend bull market, with holders gaining a return of up to 337%. The main factors supporting the company's bull run are strong fundamentals and strong market sentiment.
In terms of fundamentals, the company's IDG business serves as its core foundation. Its core PC products have benefited from product structure improvements and iterative product development driven by high R&amp;D investment. The proportion of high-end products has continued to increase, consistently outperforming the industry. The company is in a leading position in the development of AI PCs, being the first to transform into AI PC products, fully meeting the needs of new generative AI workloads. In December of this year, it released the world's first business AI PC - the ThinkPad X1 Carbon AI laptop, in anticipation of the demand explosion for AI PCs in 2024. Furthermore, the company has begun to establish AI PC applications and ecosystems and will drive innovation in the next generation of operating systems.
With ISG and SSG businesses as its dual engines, ISG has multiple products that are industry leaders, such as servers and storage products, with its storage products ranking third in global market share. SSG empowers industry intelligence and has achieved double-digit growth for ten consecutive quarters, with the strongest profitability and a profit margin of 21%. The dual engines also implement a comprehensive AI strategy, such as AI servers, which account for nearly 20% of the server business.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231230/1703904159101058.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image 5.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231230/1703904159101058.png"/>
The company is building AI+ products across all its businesses. On one hand, it has superior product capabilities to stimulate market demand and expand market space. On the other hand, it maintains its leading position in the industry with its first-mover advantage, driving steady performance growth.
In terms of funding, Lenovo continues to receive shareholder increases and market rush, such as the frenzy of southbound funds. According to data from the Zhitong App official website, the market value of southbound funds' holdings in early January 2023 was only HKD 166.8 million, but it increased to HKD 6.608 billion as of December 28th, with a total rush of HKD 4.94 billion during this period.
In terms of trading seat statistics, various market funds have been mostly net inflows in the past 60 days. The Hong Kong Stock Connect (Shenzhen and Shanghai) seats had a net purchase of 21.1 million shares, the HSBC Shanghai seat had a net purchase of 12.7 million shares, and the Citibank seat had a net purchase of 61.125 million shares. The continuous increase in southbound funds and multiple trading seats indicates investors' full recognition of the company's fundamental value and their optimism about future business and industry prospects.
In the same sector and concept, Lenovo is regarded as the &#34;market leader&#34; by funds. For example, in the computer and equipment sector, most individual stocks have low trading activity, except for Lenovo Group and Lenovo Holdings, whose market value is below HKD 3 billion. It can be said that Lenovo alone has driven a 58% increase in the sector. Among all &#34;tech innovation&#34; targets in the Hong Kong stock market, Lenovo's net fund inflows and price increases are among the top. In addition, it can surpass competitors in different markets. For example, HP's increase in the bullish US stock market is only 16.4%, which is 64.6 percentage points lower than Lenovo.
Looking ahead to 2024, seize the undervalued &#34;tech innovation&#34; leader
2023 is already history, and the global economy is still in recovery in 2024. Investors are relatively optimistic about the overall market under the expectation of interest rate cuts. However, the market and sectors are still divided mainly due to: first, global economic uncertainties leading to cautious fund allocation; second, geopolitical turmoil affecting the global supply chain; third, funds continuously flowing into markets such as gold and digital currencies under the safe-haven sentiment; fourth, the flow of funds through the Hong Kong Stock Connect, exacerbating differences in investment styles and stock volatility.
With the market fluctuating, choosing industries and individual stocks is a difficult task. However, in order to achieve excess returns, it is necessary to closely follow policy trends. The current policy guidance in Hong Kong is to build a blueprint for the &#34;tech innovation&#34; industry, which has already established industry funds and industrial bases, introduced high-quality assets, and attracted global funds through financing platforms. The market sentiment is highly sensitive to policies, and the &#34;tech innovation&#34; sector is likely to remain one of the hottest investment themes in 2024.
The Hong Kong stock market is adding several &#34;tech innovation&#34; leaders in different fields, such as ZhiXing Technology (a leader in autonomous driving) and UBTECH (a leader in humanoid robots), and these high-quality assets have attracted funds' rush.
However, in addition to new stocks, there are still several undervalued &#34;tech innovation&#34; leaders in the Hong Kong stock market, such as Lenovo Group mentioned earlier. Although it has achieved excess returns in 2023, its valuation is not high, and expectations remain. The strong fundamentals, as well as the continued increase in holdings by southbound and global value investors, support the upward trend in market capitalization.
The cold winter in the Hong Kong stock market is not yet over, and the profitability in the market and sectors is becoming increasingly poor. In this investment environment, the &#34;tech innovation&#34; theme may continue to be the preferred allocation for 2024, and Lenovo Group is expected to be sought after once again, becoming the &#34;star stock&#34; leading the Hong Kong stock market.

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In 2023, the overall performance of the Hong Kong stock market was poor, and the sluggish market led to losses for most investors. However, in a challenging investment environment, there were still some sectors and individual stocks that achieved excess returns. Zhitong App observed that in 2023, more than 10 sectors in the Hong Kong stock market recorded gains, with the telecommunications equipment sector, computer and peripheral equipment sector, and oil and gas producers leading the way in terms of growth. At the same time, the gold sector, higher education and training stocks, and new energy vehicles also received attention. The Hong Kong stock market as a whole was lackluster, with significant differentiation among sectors and individual stocks, and stock prices were highly sensitive to policies, events, performance, and valuations.

A Review of the 2023 Hong Kong Stock Allocation Chart: LENOVO GROUP is the Darling of Southbound Funds