Market Overview - On August 19, the Hong Kong stock market showed a lack of direction for two consecutive days, with the Hang Seng Index falling by 54 points or 0.2% to close at 25,122 points. The Hang Seng Tech Index decreased by 0.7% to 5,542 points. The total market turnover reached HKD 278.2 billion, with a net inflow of HKD 18.57 billion into the Hong Kong Stock Connect, primarily into index ETFs [1] Interest Rates and Liquidity - The one-month HIBOR has risen to 2.57%, a two-month high, as the Hong Kong Monetary Authority continues to withdraw HKD liquidity. The Hong Kong-US interest rate spread has narrowed to 1.76%, leading to a strengthening of the Hong Kong dollar. The rising cost of funds in Hong Kong directly impacts corporate financing and investors' margin borrowing costs, potentially reducing the willingness to use leverage [2] - In the medium term, global liquidity is expected to ease, and if the Federal Reserve resumes preventive rate cuts in September, the one-month HIBOR may rise to around 3% before likely reversing downward [2] Automotive Sector - In the automotive sector, Li Auto (9863 HK) reported a half-year vehicle delivery volume of 221,000 units, a year-on-year increase of 155%, with revenue of CNY 24.25 billion, up 174% year-on-year. The company achieved a gross margin of 14.1%, an increase of 13 percentage points year-on-year, and a net profit of CNY 30 million, marking its first profitable half-year. The management has raised the annual sales target to 580,000-650,000 units, a year-on-year increase of 97%-121% [3] Healthcare Sector - The Hang Seng Healthcare Index fell by 1.6%, attributed to a pullback after consecutive gains. Hansoh Pharmaceutical (3692 HK) exceeded market expectations, with a year-on-year revenue increase of 14.3% and a net profit increase of 15.0%. The company's innovative drug product revenue grew rapidly, contributing to a 13.2% increase in total product sales revenue. The sales expense ratio and management expense ratio both decreased, leading to better-than-expected performance [4] Real Estate Sector - The transaction volume of new homes in 30 major cities reached 1.23 million square meters, a year-on-year decline of 15.5%, which is worse than the previous week's decline of 12.3%. The cumulative transaction volume in first-tier cities showed a slight narrowing of declines, with Beijing down 5.4%, Shanghai down 1.5%, Guangzhou up 12.4%, and Shenzhen up 6.3% [5][6] - The inventory-to-sales ratio for commodity housing in ten major cities rose to 121.5, higher than the previous year's 98.7 and the prior week's 119.0 [7] - The land transaction volume in 100 major cities fell by 66.4% year-on-year, with a total area of 7.35 million square meters [8] - Various supportive measures for the real estate market have been introduced across multiple regions, including new initiatives in Tianjin and Fuzhou [9] Policy Outlook - The National Bureau of Statistics reported disappointing figures for July, with new housing starts and completed projects down 15.2% and 29.5% year-on-year, respectively. The overall performance of the real estate market remains weak, but recent policy measures may provide some support [10][12]

Core Viewpoint - The Hong Kong stock market has shown strong performance in the first half of the year, with significant increases in IPO activities and overall market indices, indicating a positive outlook for the second half of the year [1][3][4]. IPO Market - In the first half of the year, Hong Kong completed 42 IPOs, raising over HKD 107 billion, which is approximately 22% more than the total for the previous year, making it the top global market for IPOs [1][3]. - There has been a rapid increase in IPO applications, with around 200 applications received so far, doubling from the beginning of the year, including interest from companies in the Middle East and Southeast Asia [4]. Market Performance - The Hang Seng Index rose by 20% in the first half of the year, marking the largest increase in points ever recorded for this period [1][3]. - Despite a recent pullback, the absolute valuation of Hong Kong stocks remains relatively low, suggesting strong medium to long-term investment potential [2][7]. Exchange-Traded Products (ETPs) - There are over 210 ETPs listed in Hong Kong, with total managed assets nearing HKD 510 billion, a 30% increase since 2020, and daily trading volume has increased fivefold to approximately HKD 40 billion [5][6]. - The Hong Kong Stock Exchange is actively promoting the listing of various themed ETFs, including those focused on innovative technology, climate change, renewable energy, and biotechnology [6]. Sector Analysis - The technology sector is highlighted as having significant investment value, with strong policy support and growth potential, while consumer sectors are expected to improve due to domestic consumption policies [7][8]. - The Hang Seng Index and Hang Seng Tech Index show attractive valuation metrics, with the former having a TTM P/E ratio of 10.68, indicating a favorable investment environment compared to other major markets [8].

Core Viewpoint - The article discusses the performance and recovery of the Hong Kong stock market, highlighting its recent growth driven by earnings recovery and valuation improvements, particularly in the technology and healthcare sectors. Group 1: Market Performance - The Hong Kong stock market has seen significant gains this year, benefiting from a recovery in fundamentals [3][4] - The Hang Seng Index experienced a substantial decline in previous years, dropping to a low rating of 5.9 stars, with a peak decline of around 50% [7] - In 2023-2024, the Hong Kong stock market is gradually returning to growth, with the first quarter of 2025 marking the best earnings growth period in four years [8][9] Group 2: Earnings Growth - The earnings growth in Hong Kong stocks is primarily driven by technology and healthcare sectors, which have outperformed their A-share counterparts by 20-30% in short-term gains [16][21] - The earnings growth observed this year is largely a rebound from the previous years' low performance, indicating a cyclical nature of economic performance [13][15] Group 3: Valuation Insights - The article reiterates the fundamental formula for index investment: Index Net Value = Valuation * Earnings + Dividends, emphasizing that earnings growth is the engine driving index increases over time [5][6] - The technology and healthcare indices in Hong Kong have returned to normal valuation levels after recent increases, with the Hong Kong Technology Index rising from approximately 2800 points to around 3100 points [22][23] Group 4: Investment Considerations - Despite the positive performance, the article warns that the Hong Kong market experiences greater volatility in earnings and valuations, influenced by a high proportion of foreign and institutional investors [24][25] - Investors should be prepared for significant downturns during periods of earnings stagnation, as seen in 2021-2022, and should focus on undervalued investments while being mentally prepared for market fluctuations [26][28]

Group 1 - The Federal Reserve has maintained the federal funds rate target range at 4.25% to 4.50%, marking the third consecutive time this year that rates have remained unchanged [1] - The performance of the Hong Kong stock market is closely linked to global liquidity, particularly U.S. dollar liquidity, influenced by the Federal Reserve's monetary policy, dollar exchange rates, and U.S. Treasury yields [1][2] Group 2 - Changes in U.S. Treasury yields significantly impact cross-border capital flows and the valuation of Hong Kong stocks, with rising yields leading to reduced investment in Hong Kong assets [3] - The monetary policy cycle of the Federal Reserve affects the Hong Kong stock market differently, with initial rate cuts improving liquidity and benefiting the market, while rate hikes can complicate market dynamics [5][4] Group 3 - The U.S. dollar index influences international capital allocation preferences, with a stronger dollar increasing the cost of holding non-dollar assets, thereby pressuring Hong Kong stocks [8][9] - Fluctuations in the exchange rate, particularly the USD/CNY rate, affect the earnings of Chinese companies listed in Hong Kong, indirectly impacting stock valuations [9][10] Group 4 - The Hong Kong-Macau interest rate differential directly affects local liquidity, with the Hong Kong Monetary Authority managing the exchange rate through an automatic interest rate adjustment mechanism [14][15] - Changes in the Libor-Hibor spread influence local liquidity conditions, with widening spreads leading to increased financing costs and pressure on high-valuation growth stocks [15][16] Group 5 - The overall impact of overseas liquidity on Hong Kong stocks can be summarized as follows: U.S. Treasury yields, U.S.-China interest rate differentials, and Hong Kong-Macau interest rate differentials drive style shifts through valuation and capital flow effects, while the dollar index and exchange rate fluctuations influence market preferences [19]

Core Insights - The valuation of the Hang Seng Index and the Hang Seng China Enterprises Index appears high, especially since they began including internet giants like Tencent Holdings from 2018, making historical comparisons less relevant [3] - Recent increases in valuations are largely driven by the performance of internet and AI-related stocks [5] - The Hang Seng Technology Index's valuation is relatively low at 25 times earnings compared to the NASDAQ's 37 times, indicating potential investment opportunities [7] - The Hang Seng Healthcare Index's valuation is difficult to assess due to many innovative drug companies being unprofitable; however, using price-to-sales ratios suggests there are still opportunities in Hong Kong's innovative drug sector [8] - The Hang Seng Consumer Index appears to be undervalued compared to its historical levels [9]