"Financials and Discretionary Consumption Expected to Remain Key Drivers in Hong Kong Stock Market"

Based on the market value proportion of various sectors in the Hong Kong stock market as a benchmark, we estimate the changes in over- or under-allocation of various sample funds and find that there is a clear style difference between the Chinese-funded and foreign-funded sectors. The Chinese-funded sector generally over-allocates to the financial sector of the Hong Kong stock market and under-allocates to discretionary consumption, while the foreign-funded sector is exactly the opposite; the financial sector is their largest under-allocation, and the discretionary consumption sector is the largest over-allocation for foreign funds. The internet securities sector is a mix of preferences from both Chinese and foreign capital. Currently, the short selling of the financial and discretionary consumption sectors relative to the total transaction volume of the sectors has fallen to a low level since 2023. It is expected that these two sectors will continue to be important points of contention in the market, and the core driving force still depends on the dual driving force of fundamentals and policy.

The main views of Bank of Communications International are as follows:

Under high volatility, it is necessary to combine the position side to judge the future market

Bank of Communications International pointed out that after the significant fluctuation in the Hong Kong stock market on October 8th, it emphasized the continued optimism for the future of the Hong Kong market. However, it also emphasized that the trend of the Hong Kong stock market will face high volatility and high differentiation. Under this situation, it is necessary to combine the position side of the Hong Kong stock market to judge the future market.

Advertisement

Starting from the data of the Central Clearing and Settlement System (CCASS), we classify the securities companies, using this as a proxy variable to indirectly reflect the high-frequency changes in the actual buyers' fund positions. The positions of the Hong Kong stock market are divided into four major categories: foreign securities, Southbound funds, Chinese-funded securities in Hong Kong, and internet securities, based on their daily position data and the closing price of the day, to specifically calculate their position scale. And their positions are specifically summarized to the sector level.

The perspective of holding the stock: the position generally rises, generally buys

By calculating the market value proportion of the Hong Kong stock market held by these groups, it can be found that the market value proportion of the positions held by several sample groups has been rising since late September, which means that in this round of the rise, both Chinese and foreign capital are buying. Among them, foreign capital bought more obviously than Chinese capital in this round.

Chinese and foreign capital are generally adjusting the structure, reducing the deviation of over- or under-allocation

Taking the market value proportion of various sectors in the Hong Kong stock market as a benchmark, we estimate the changes in over- or under-allocation of various sample funds and find that there is a clear style difference between the Chinese-funded and foreign-funded sectors. The Chinese-funded sector generally over-allocates to the financial sector of the Hong Kong stock market and under-allocates to discretionary consumption, while the foreign-funded sector is exactly the opposite; the financial sector is their largest under-allocation, and the discretionary consumption sector is the largest over-allocation for foreign funds. The internet securities sector is a mix of preferences from both Chinese and foreign capital. Since September 23rd, all kinds of funds have been actively adjusting the structure while buying, and the biggest feature is that both Chinese and foreign capital are generally continuously reducing the deviation from the benchmark index.

From this, it can be seen that in this round of the rise, "adjusting the structure" is also happening rapidly. It is expected that a large proportion of the Hong Kong stock market turnover is contributed by the transaction amount of "adjusting the structure". Faced with the potential possibility of a large-scale introduction of subsequent policies, combined with the low valuation and low turnover of the Hong Kong stock market, the allocation of different preferences of funds such as Chinese and foreign capital are focusing on a certain degree of "neutralization" of their sector allocation, which makes the adjustment become a short-term "crowded transaction" and greatly increases the volatility of the Hong Kong stock market.Finance vs. Discretionary Consumption: Expected to Remain a Key Focus of Capital Competition

Currently, the short selling ratio of the finance and discretionary consumption sectors relative to the total transaction volume has dropped to a low level since 2023, which is consistent with the recent trend of Chinese and foreign capital reducing the deviation from the benchmark index towards "neutralization."

Despite the fact that both Chinese and foreign capital have generally made adjustments to their over-weighted and under-weighted sectors, the deviation is still not low, and there is still room for further "neutralization." It is expected that the finance and discretionary consumption sectors will continue to be important points of contention in the market, and the core driving force still depends on the dual-wheel drive of fundamentals and policy.