Core Viewpoint - Recent analysis by China Merchants Securities indicates that the narrative of tightening liquidity in Hong Kong stocks has marginally improved due to the stabilization of Hibor rates and dovish statements from Powell [1] Group 1: Liquidity and Market Performance - The improvement in liquidity conditions is deemed sufficient to support a phase of rebound in Hong Kong stocks, narrowing the gap with the recently surging A-shares [1] - The current earnings surprise rate for Hong Kong stocks is at its highest since 2022, indicating positive performance expectations [1] Group 2: Investment Strategy - In the context of previous bull markets, Hong Kong stock indices have historically underperformed compared to A-shares, suggesting a need for differentiated investment strategies [1] - Recommended investment focus includes innovative pharmaceuticals first (due to loose liquidity and positive BD data), followed by the internet sector (where earnings pressures are fully priced in), and finally new consumption (awaiting macroeconomic and profit turning points) [1]

Group 1 - The Hong Kong stock market showed a low opening but recovered, with the Hang Seng Tech Index narrowing its decline to around 0.2% [1] - The largest ETF tracking the Hang Seng Tech Index (513180) experienced a slight drop, with notable declines in stocks like NIO, ASMPT, Hua Hong, SMIC, Li Auto, Meituan, and Alibaba, particularly NIO which fell over 6% [1] - Longcheng Securities noted a correlation between Hong Kong bank reserves and the performance of the Hang Seng Tech and STAR 50 indices, indicating that when bank reserves fluctuate less, both indices tend to perform similarly [1] Group 2 - There is a significant increase in expectations for a rate cut by the Federal Reserve in September, which may lead to improved global liquidity benefiting the Hong Kong stock market, particularly the high-growth tech sector [2] - The Hang Seng Tech Index is currently in a historically undervalued range and is highly sensitive to changes in the US-China interest rate differential, making it likely to benefit from a more accommodative overseas liquidity environment [2] - Given the previous underperformance of the Hang Seng Tech Index compared to the A-share tech sector, there is potential for a strong upward momentum and a "catch-up" rally in the context of improving liquidity narratives [2]

Market Outlook and Strategy - The improvement in liquidity narrative is expected to support a rebound in the Hong Kong stock market, narrowing the gap with the rapidly rising A-share market [1][3] - The current earnings forecast rate for Hong Kong stocks is at its highest since 2022, indicating a positive outlook for earnings improvement [1][6] - It is recommended to focus on sectors that differ from A-shares, with a suggested investment sequence of innovative drugs first, followed by the internet sector, and finally new consumption [1][7] Sector Recommendations - Recommended sectors include innovative drugs, internet, and non-bank financials, with specific indices provided for each [1][9] - The innovative drug sector is highlighted due to alleviated liquidity risks and high growth potential [9] - The internet sector is seen as having fully priced in earnings pressures, making it a potential area for growth in a loosening liquidity environment [9] - Non-bank financials are considered a good base choice in a bull market, with valuations significantly lower than A-shares, indicating potential for catch-up [9] Performance Review - The Hong Kong stock market saw a slight increase last week, with the Hang Seng Index rising by 0.27% and the Hang Seng Tech Index increasing by 1.89% [12][15] - The AH premium index expanded to 125.33, reflecting positive market sentiment [12] - The majority of sectors experienced gains, particularly non-essential consumption, information technology, and telecommunications, while materials, energy, and utilities lagged [15] Micro Liquidity Analysis - Average daily trading volume in the Hong Kong market reached 280.3 billion HKD, indicating a significant increase in trading activity [18] - There was a net inflow of 179 billion HKD from southbound funds, primarily directed towards financial, information technology, and healthcare sectors [29] - Local ETFs saw a net inflow of 5.5 billion HKD last week, contributing to a total net inflow of 45.1 billion HKD year-to-date [24][27] Earnings Disclosure - As of August 25, 2023, 699 Hong Kong-listed companies have issued earnings warnings, with 41% indicating positive earnings revisions, the highest rate in three years [6][8] - The technology, pharmaceutical, and new consumption sectors in Hong Kong have a higher representation compared to A-shares, suggesting potential for continued earnings improvement [6] Valuation Levels - The forward P/E ratio for the Hang Seng Index is currently at 11.6X, placing it in the 69.3 percentile since 2020, while the Hang Seng Tech Index stands at 19.3X, in the 24.6 percentile since its inception [33][35]

Core Insights - The recent rally in the A-share market is fundamentally different from previous short-term spikes, driven by improved liquidity, a shift in capital allocation, and expectations of policy easing, with increasing investor confidence in the long-term macroeconomic outlook [1][3] Market Performance - The Shanghai Composite Index and CSI 300 Index have risen approximately 11% and 8% year-to-date, respectively, with significant acceleration since late June [3] - On August 15, the Shanghai Composite Index surpassed 3700 points, reaching its highest level in nearly a decade since 2015, while the CSI 300 Index also broke through 4200 points, a level previously seen only briefly in September 2024 and January 2023 [3] Key Indicators for Sustainability - Investors should focus on four key signals to assess the sustainability of the current rally: changes in bond yields, policy catalysts, second-quarter earnings performance, and potential government interventions [3][4] - The current market momentum is expected to continue into the summer, with the CSI 300 Index potentially targeting a bullish goal of 4700 points in the short term [3][5] Liquidity Improvement - Domestic liquidity conditions are steadily improving, as indicated by Morgan Stanley's proprietary "Free Liquidity Indicator," which turned positive in June 2025 and remained positive in July, primarily due to funds flowing into the corporate sector from government bond issuances [3][4] Bond Yield Trends - The yields on 10-year and 30-year government bonds have risen to 1.78% and 2.11%, respectively, reflecting a positive shift in investor expectations regarding the economic outlook [3][4] Policy Factors - The ongoing "anti-involution" policies in China are accumulating positive effects, boosting market sentiment and enhancing investor expectations for price stability and improved supply-demand dynamics [4] - Anticipation of new local and gradual real estate easing measures in the coming months is also contributing to market optimism [4] Earnings Performance - The A-share market achieved its first quarter of earnings in line with expectations in Q1 2025, and if the trend of profit growth continues, it could signify a clearer turning point for the market [4] Government Intervention - Current margin financing balances exceed 2 trillion yuan (approximately 290 billion USD), but the proportion of free-float market value is slightly below the ten-year average, suggesting a lower likelihood of strong government intervention in the short term [5] - Morgan Stanley maintains an "overweight" rating on A-shares since June, expecting continued outperformance compared to offshore markets [5]

Group 1 - The core viewpoint is that during the US interest rate cut cycle, Hong Kong stocks may exhibit better resilience than US stocks, benefiting from improved liquidity and risk appetite, with a focus on TMT, energy, and telecommunications sectors [1] - The current trading mode is primarily characterized by stagflation trading, with a potential shift towards easing trading scenarios and recession trading scenarios [1] - Under stagflation trading, Hong Kong stocks have shown higher gains (close to those in easing trading), while US stocks have seen slight increases (similar to recovery trading), and US Treasury yields have declined (approaching recession trading declines) [1] Group 2 - The Hong Kong Technology ETF (513020) tracks the Hong Kong Stock Connect Technology Index (931573), which selects the top 30 securities by market capitalization from technology-related listed companies traded through Stock Connect, reflecting the overall performance of the technology sector in Hong Kong [1] - The index emphasizes information technology and hardware sectors, showcasing a balanced allocation across multiple tracks [1] - Investors without stock accounts can consider the Cathay CSI Hong Kong Stock Connect Technology ETF Initiated Link A (015739) and Link C (015740) [1]

Market Overview - The A-share market is currently experiencing fluctuations around the 3600-point level, reflecting increased divergence between bulls and bears [2][16][17] - The market is likely to enter a period of consolidation, with the index expected to oscillate around 3600 points to digest accumulated pressure [17] - Short-term market sentiment is influenced by profit-taking and external disturbances, while medium-term trends remain upward due to policy support and industry upgrades [5][17] Sector Performance - The semiconductor and AI application sectors have shown strength, indicating a potential shift towards technology stocks, particularly among small and mid-cap growth stocks [1][16] - The "Yalu River Downstream Hydropower" concept stocks have experienced significant volatility, with a recent pullback after a period of strong performance [11] - The healthcare sector, particularly innovative drugs and medical devices, is expected to see continued growth due to favorable policy changes and an aging population [10] Investment Strategy - Short-term strategies should focus on avoiding high-flying stocks and selectively reducing positions in sectors that have seen substantial gains, such as the Yalu River hydropower concept [3][17] - Mid-term investments should target growth sectors with elastic potential, including AI infrastructure, innovative pharmaceuticals, and humanoid robotics, driven by both policy and technological advancements [3][17] - The cultural media sector is also highlighted as a potential area for investment, particularly in gaming and interactive content, benefiting from advancements in AI technology [9] Economic Indicators - The report emphasizes the importance of monitoring tariff negotiations and the overall liquidity environment, which are expected to positively influence the A-share market [3][17] - The upcoming fiscal policy window in Q3 and the timing of the Federal Reserve's monetary policy shift are critical factors to watch for market direction [3][17]

Index Performance - The CSI A500 Index increased by 1.41% this week, marking four consecutive weeks of gains, closing at 4773.24 points as of July 18 [6] - The average daily trading volume for the week was 4454.05 billion yuan, with a week-on-week increase of 9.49% [6] Component Stocks - The top ten gainers in the CSI A500 this week included: 1. Xinyi Technology (300502.SZ) with a gain of 39.01% 2. Pengding Holdings (002938.SZ) with a gain of 25.56% 3. Zhongji Xuchuang (300308.SZ) with a gain of 24.33% 4. Dongshan Precision (002384.SZ) with a gain of 22.04% 5. Xinlitai (002294.SZ) with a gain of 20.86% 6. Ecovacs Robotics (603486.SH) with a gain of 20.86% 7. Jianghuai Automobile (600418.SH) with a gain of 17.40% 8. Feilihua (300395.SZ) with a gain of 15.98% 9. Shenxinfeng (300454.SZ) with a gain of 15.37% 10. Zili Tianheng (688506.SH) with a gain of 14.15% [4] - The top ten losers included: 1. Guanghui Energy (600256.SH) with a loss of 10.80% 2. Sanqi Interactive Entertainment (002555.SZ) with a loss of 10.57% 3. Chunfeng Power (603129.SH) with a loss of 8.98% 4. Kaiying Network (002517.SZ) with a loss of 8.32% 5. Giant Network (002558.SZ) with a loss of 7.83% 6. Jinlang Technology (300763.SZ) with a loss of 7.36% 7. Sitaiwei (688213.SH) with a loss of 6.66% 8. Wuchan Zhongda (600704.SH) with a loss of 5.88% 9. Samsung Medical (601567.SH) with a loss of 5.41% 10. Zhangqu Technology (300315.SZ) with a loss of 5.22% [4] Fund Performance - All 38 CSI A500 funds collectively rose this week, with the top performer being ICBC Credit Suisse with a gain of 1.84% [6] - The total scale of CSI A500 funds reached 1902.74 billion yuan, with a decrease of 386.18 billion yuan over the week, marking three consecutive weeks of decline [6] - The top three funds by scale are from Huatai-PB (178.3 billion yuan), Guotai (173.54 billion yuan), and GF Fund (170.02 billion yuan) [6] Market Outlook - According to a report from China Galaxy Securities, the small-cap stocks outperformed in the first half of 2025, with the CSI 300 Total Return Index rising by 1.37% and the CSI 1000 Total Return Index rising by 7.54% [7] - The report suggests that institutional investors are likely to favor large-cap blue-chip stocks due to their stable performance and dividends, especially in the context of ongoing external uncertainties [7] - CITIC Securities indicates that signs of economic stabilization in China are becoming evident, and the potential for liquidity improvement could benefit the non-bank sector, enhancing market activity [7]

Core Viewpoint - The Hong Kong IPO market is experiencing a strong recovery in the first half of 2025, with an increase in new listings and fundraising, making it a focal point for global capital markets [2][3]. Group 1: Market Performance - In the first half of 2025, 42 traditional IPO projects were completed in Hong Kong, raising over 105 billion HKD, surpassing the total fundraising amounts of 2022, 2023, and 2024 [3]. - The number of new listings in Hong Kong increased by 40% compared to the same period last year, with total fundraising reaching a global high [13]. - The average daily trading volume in the secondary market rose from 1,048 billion HKD in 2023 to 2,394 billion HKD in 2025, marking a liquidity increase of 128% [13]. Group 2: International Investment Trends - International funds are shifting from a "risk-averse" approach to a "risk and return rebalancing," with increased interest in the Asia-Pacific markets, including China [4]. - The influx of capital into Hong Kong has risen significantly, from 366 billion USD in early 2024 to 506 billion USD by April 2025, the highest level since 2000 [4]. - A survey indicated a dramatic change in investor sentiment, with many now favoring the Asia-Pacific markets over the US [4]. Group 3: Policy and Regulatory Support - The Hong Kong IPO market is benefiting from supportive policies and optimized listing regulations, which have been implemented since September of last year [7]. - The Chinese government has encouraged qualified domestic companies to list abroad, enhancing Hong Kong's role as a financing hub [7]. - Recent regulatory changes have made it easier for unprofitable biotech and technology companies to go public in Hong Kong [7][9]. Group 4: Valuation and Liquidity - The Hong Kong market is experiencing a valuation recovery driven by technical breakthroughs and improved liquidity, positively impacting new stocks [10][11]. - The Hang Seng Index has shown a bullish trend since January 2024, indicating a full recovery of market vitality [12]. - The current market environment is fostering a virtuous cycle of increased investor confidence and market activity [13]. Group 5: Future Outlook - The IPO market in Hong Kong is expected to maintain its momentum in the second half of 2025, with over 170 listing applications currently in process [13]. - It is anticipated that around 80 new companies will list in Hong Kong in 2025, raising approximately 200 billion HKD [13]. - The trend of A-share leading companies seeking dual listings in Hong Kong is becoming more prevalent, driven by the need for international exposure and diversified financing [9].