China Galaxy Securities: The Federal Reserve's interest rate cut is in place, and the Hang Seng TECH Index leads global equity indices

According to the Zhitong Finance APP, China Galaxy Securities has released a research report stating that the current valuation percentile of Hong Kong stocks is at a historically above-average level. Looking ahead, it is expected that the Hong Kong stock market will generally trend upwards. In terms of allocation, it is recommended to focus on the following sectors: (1) sectors with significant policy and industry benefits, such as the AI industry chain, lithium batteries, and service consumption; (2) with the Mid-Autumn Festival and National Day holidays approaching, the activity in tourism-related sectors is expected to increase; (3) with the Federal Reserve's interest rate cuts taking effect and ongoing US-China talks, market risk appetite is recovering, and flexible technology stocks are likely to attract capital.

The main points from China Galaxy Securities are as follows:

Performance of Hong Kong stocks this week

(1) This week (from September 15 to September 19), major global stock indices showed mixed results. Among them, the three major Hong Kong indices collectively strengthened, with the Hang Seng Index rising by 0.59% to 26,545.10 points, the Hang Seng Tech Index rising by 5.09%, and the Hang Seng China Enterprises Index rising by 1.15%.

(2) In terms of Hong Kong stock sectors: this week, 4 sectors rose and 7 sectors fell. Among them, industrial, consumer discretionary, and information technology sectors led the gains, rising by 6.08%, 3.57%, and 1.90%, respectively; financials, utilities, and materials sectors led the declines, falling by 3.60%, 2.59%, and 2.19%, respectively. From the secondary industry perspective, this week, electrical equipment, semiconductors, automobiles and parts, consumer discretionary retail, and coal sectors led the gains, while non-bank financials, paper and packaging, building materials, real estate investment trusts, and banks led the declines.

Liquidity of Hong Kong stocks this week

(1) This week, the average daily turnover on the Hong Kong Stock Exchange was HKD 347.12 billion, an increase of HKD 44.09 billion from last week. The average daily short-selling amount this week was HKD 32.48 billion, a decrease of HKD 1.91 billion from last week; the average proportion of short-selling amount to turnover was 9.35%, a decrease of 2.03 percentage points from last week.

(2) This week, southbound funds had a cumulative net purchase of HKD 36.851 billion, a decrease of HKD 23.971 billion from last week.

Valuation and risk appetite of Hong Kong stocks

(1) As of September 19, the PE and PB ratios of the Hang Seng Index were 12.04 times and 1.23 times, respectively, both up 0.02% from last Friday, and at the 86% and 89% percentile levels since 2019. The PE and PB ratios of the Hang Seng Tech Index were 23.86 times and 3.49 times, respectively, at the 34% and 74% percentile levels since 2019.

(2) As of September 19, the yield on 10-year US Treasury bonds rose by 8 basis points from last Friday to 4.14%, and the risk premium rate of the Hang Seng Index was 4.17%, which is -2.18 standard deviations from the 3-year rolling average, at the 4% percentile level since 2010. The yield on 10-year Chinese government bonds rose by 1.19 basis points from last Friday to 1.8789%, resulting in a risk premium rate of 6.43% for the Hang Seng Index, which is -2.0 standard deviations from the mean (3-year rolling), at the 41% percentile level since 2010.

(3) As of September 19, the AH premium index of the Hang Seng Stock Connect decreased by 2.06 points from last Friday to 117.11, at the 9% percentile level since 2014 Investment Outlook for the Hong Kong Stock Market

Overseas, on September 17th local time, the Federal Reserve announced its interest rate decision, with the FOMC deciding to lower the federal funds rate target range by 25 basis points to 4%-4.25%. This marks the first rate cut of the year and the resumption of rate cuts after a 9-month hiatus. Powell stated that this 25 basis point cut aims to address the slowdown in economic growth and employment risks, with future decisions to be made based on data at successive meetings. U.S. job growth has slowed, and the risks to employment have increased. Expectations for Fed rate cuts have strengthened, leading to an increase in market risk appetite.

Domestically, China's economic data for August has been released. In August, the national industrial added value above designated size increased by 5.2% year-on-year and 0.37% month-on-month. The service production index rose by 5.6% year-on-year, and the total retail sales of consumer goods increased by 3.4% year-on-year and 0.17% month-on-month. From January to August, national fixed asset investment grew by 0.5% year-on-year, with manufacturing investment increasing by 5.1% and real estate development investment decreasing by 12.9%.

Looking ahead, it is recommended to focus on the following sectors in the Hong Kong stock market: (1) sectors with favorable policies and industry benefits, such as the AI industry chain, lithium batteries, and service consumption; (2) with the Mid-Autumn Festival and National Day holidays approaching, the activity in tourism-related sectors is expected to increase; (3) with the Fed's rate cut implemented and ongoing U.S.-China talks, market risk appetite is recovering, and technology stocks with greater elasticity are likely to attract funding.

Risk Warning: Risks of domestic policy strength and effectiveness falling short of expectations; risks of overseas rate cuts not meeting expectations; risks of unstable market sentiment