Market Overview - On September 5, Hong Kong's three major indices collectively strengthened, with the Hang Seng Index rising by 1.43% to 25,417.98 points, the Hang Seng Tech Index increasing by 1.95% to 5,687.45 points, and the National Enterprises Index up by 1.34% to 9,057.22 points [1] - The weekly performance showed the Hang Seng Index up by 1.36%, the Hang Seng Tech Index up by 0.23%, and the National Enterprises Index up by 1.22% [1] - Notable stocks included Kuaishou rising over 4%, Tencent Holdings up over 2%, and Alibaba and Meituan both increasing by over 1.5% [1] Southbound Capital - On September 5, southbound capital recorded a net inflow of 56.23 billion HKD, with a cumulative net inflow of 10,120.58 billion HKD year-to-date, significantly exceeding last year's total net inflow [2] U.S. Market Performance - Overnight, U.S. stock indices experienced slight declines, with the Dow Jones down by 0.48%, the S&P 500 down by 0.32%, and the Nasdaq down by 0.03% [3] - Notable declines included JPMorgan falling over 3% and Nvidia dropping more than 2% [3] - Chinese concept stocks mostly rose, with Canadian Solar increasing over 15% and SOTI Biotech up over 11% [3] Key Economic Data - The U.S. Labor Department reported that non-farm employment grew by only 22,000 in August, significantly below the market expectation of 75,000, with the unemployment rate rising to 4.3%, the highest since 2021 [4] - The data has led to renewed expectations for interest rate cuts [4] Company Developments - Alibaba's subsidiary Tongyi Qianwen launched Qwen3-Max-Preview, its largest model to date with over 1 trillion parameters, showing significant improvements in understanding Chinese and English, following complex instructions, and reducing knowledge hallucinations [4] - On September 8, adjustments to the Hang Seng Index constituents will take effect, increasing the number of stocks from 85 to 88, with additions including China Telecom, JD Logistics, and Pop Mart [4] Short Selling Data - On September 5, a total of 637 Hong Kong stocks were short-sold, with total short selling amounting to 33.389 billion HKD [5] - The top three stocks by short selling amount were Alibaba at 3.572 billion HKD, Pop Mart at 1.934 billion HKD, and Horizon Robotics at 1.931 billion HKD [5] Institutional Insights - Haitong International noted that most Hong Kong companies have reported their financials, with short-term performance affected by disruptions, particularly in retail and automotive sectors, while hardware, materials, finance, and pharmaceuticals showed high growth [6] - EPS growth expectations for Hong Kong stocks in 2025 have been notably revised downwards due to consumer discretionary pressures, while materials, pharmaceuticals, technology, and finance are seeing upward revisions [6] - The implementation of anti-involution policies may shift the narrative for Hong Kong internet stocks towards AI empowerment, potentially boosting earnings expectations and attracting incremental capital inflows [6] ETF Insights - The Hong Kong Consumption ETF (513230) focuses on e-commerce and new consumption sectors, which are relatively scarce compared to A-shares [7] - The Hang Seng Tech Index ETF (513180) includes core AI assets and encompasses technology leaders that are also relatively scarce compared to A-shares [8]

Core Viewpoint - Recent inflow of capital into Hong Kong stocks has reached record levels, with fund managers optimistic about the market's potential for a bull run, supported by both fundamental and capital factors [2][4]. Group 1: Capital Inflow and Market Performance - As of September 2, the net inflow of southbound funds has exceeded 1 trillion HKD this year, marking a historical high since the launch of the Hong Kong Stock Connect in 2014 [4]. - There have been 43 trading days this year where net purchases exceeded 10 billion HKD, with 11 days surpassing 20 billion HKD [4]. - The continuous inflow of southbound funds is seen as a key driver for the market, similar to previous strong periods in 2012-2014 and 2016-2018 [4][5]. Group 2: Investment Preferences and Structural Changes - Southbound funds are primarily focused on high dividend, low valuation, and high growth sectors, with significant holdings in healthcare, finance, and technology [9]. - The investment landscape is shifting from being dominated by international institutional investors to a more balanced structure with local institutional investors gaining influence [8][9]. - The market is undergoing a profound revaluation process, with technology and consumer sectors now accounting for a significant portion of market capitalization, enhancing growth potential [8]. Group 3: Market Outlook and Future Trends - Despite recent underperformance compared to A-shares, the fundamentals for a bull market in Hong Kong stocks remain intact [11][12]. - The market is expected to benefit from potential interest rate cuts by the Federal Reserve, which could lead to increased liquidity and further inflows into Hong Kong stocks [13]. - Structural opportunities are emerging across various sectors, including new consumption and innovative pharmaceuticals, as well as traditional industries like finance and manufacturing [13].

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The bottom of the liquor market is gradually emerging, and growth in new consumption is expected. The food and beverage index experienced a decline of 1.0% from September 1 to September 5, ranking 14th among 28 sub-industries, underperforming the CSI 300 by approximately 0.2 percentage points. The sub-industries of processed foods (+1.0%), meat products (+0.5%), and other foods (0.0%) performed relatively well. Individual stocks such as Huanlejia, Qianwei Yangchun, and Huifa Foods saw significant gains, while Aipu Co., Youyou Foods, and New Dairy experienced notable declines. Despite market consolidation, a more proactive investment approach in the food and beverage sector is recommended to seize undervalued rotation opportunities. The liquor sector is facing demand decline due to alcohol bans, but the current fundamental situation is already reflected in the market, and the risk is reduced. As companies streamline operations, they are expected to resonate with the subsequent industry recovery, leading to increased investment interest. Some liquor brands are showing signs of improvement in opening rates, indicating that the fundamental bottom is approaching. The food and beverage sector has undergone a prolonged adjustment, and current valuations are relatively low, providing a high safety margin. Public fund positions have continued to decrease, optimizing the chip structure. Liquor companies, represented by liquor stocks, are showing a continuous increase in dividends, aligning with the stock selection criteria of certain funds, making them attractive to conservative investors. Additionally, new consumption is expected to continue attracting funds in the second half of the year. From the mid-year performance reports, new consumption targets exhibit rapid growth and strong growth potential, with high growth expected for the entire year. Investors are advised to focus on new channels, new categories, and new markets to identify new consumption targets that align with industry development trends. Specific recommended stocks include Weilong Delicious, Yanjinpuzi, Ximai Foods, Dongpeng Beverage, Youyou Foods, Wancheng Group, and Bairun Co. [3][11][12] Market Performance - From September 1 to September 5, the food and beverage index declined by 1.0%, ranking 14th out of 28, underperforming the CSI 300 by approximately 0.2 percentage points. The sub-industries of processed foods (+1.0%), meat products (+0.5%), and other foods (0.0%) performed relatively well. Individual stocks such as Huanlejia, Qianwei Yangchun, and Huifa Foods saw significant gains, while Aipu Co., Youyou Foods, and New Dairy experienced notable declines [12][13]. Upstream Data - On September 2, the GDT auction price for whole milk powder was $3,809 per ton, down 5.6% month-on-month but up 12.2% year-on-year. The domestic fresh milk price was 3.0 yuan per kilogram on August 28, remaining stable month-on-month but down 4.7% year-on-year. In the short to medium term, domestic milk prices are still on a downward trend [16][17]. Liquor Industry News - Recently, Guizhou Province announced two liquor projects with a total investment of 5.2 billion yuan. The projects include a 50,000-ton annual production facility for sauce-flavored liquor and an intelligent storage center for sauce-flavored liquor. The total investment for the production facility is 5 billion yuan, while the intelligent storage center has an investment of 200 million yuan [38][39].

Core Insights - The report indicates that the Hong Kong Stock Connect (HKSC) is experiencing a recovery in Return on Equity (ROE), particularly in the technology sector, with a focus on deep value opportunities [4][5]. Group 1: Financial Performance - In H1 2025, the overall revenue growth of HKSC was 1.4% year-on-year, with a decline of 1.3 percentage points compared to H2 2024. The net profit growth for the parent company was 4.2%, down 3.9 percentage points from H2 2024 [4]. - The non-financial segment of HKSC showed a revenue growth of 0.5% year-on-year, with a 1.0 percentage point decline from H2 2024, while net profit growth improved to 7.2%, up 2.2 percentage points from H2 2024 [4]. - The ROE for HKSC (TTM) in H1 2025 was 6.9%, remaining stable compared to H2 2024, while the non-financial ROE (TTM) increased by 0.1 percentage points to 6.4% [4]. Group 2: Sector Comparisons - The report highlights that the fundamentals of HKSC are stronger in the internet and new consumption sectors, while A-shares show better fundamentals in technology hardware and military industries [5]. - In H1 2025, the ROE (TTM) for the consumption sector in HKSC was 11.0%, improving by 1.2 percentage points from H2 2024, with both sales net profit margin and asset turnover increasing [5]. - The technology and pharmaceutical sectors in HKSC had ROEs (TTM) of 8.2% and 6.8%, respectively, both showing improvements driven by enhanced sales net profit margins [5]. Group 3: Growth Trends - The report notes that the overall profit growth of the Hang Seng Index and Hang Seng Technology Index declined in H1 2025, with the Hang Seng Index's net profit growth at -0.8% year-on-year and the Hang Seng Technology Index at 12.1% [5]. - Since the third quarter, the market has significantly revised down its profit forecasts for HKSC, with expected EPS for the Hang Seng Index and Hang Seng Technology Index decreasing by 2% and 9%, respectively, from the end of June to the end of August [5]. - The report emphasizes a continued focus on broad growth directions, particularly in AI and new consumption sectors, which are expected to provide investment value [5]. Group 4: Value Opportunities - The report identifies deep value opportunities in certain sectors, particularly in real estate and domestic consumption companies, where some firms have cash holdings exceeding their market value [5]. - The report suggests that the real estate sector is showing signs of recovery, with improvements in revenue and profit growth, and highlights the potential for stock price recovery in this sector [5]. - Additionally, the report notes improvements in growth characteristics in the consumer sector, particularly in beverages and dairy products, indicating a rotation opportunity in the consumer industry [5].

Core Insights - The report from China Merchants Securities International highlights a positive outlook for the Hong Kong stock market, with 98.6% of the 2,276 companies having disclosed their interim results by September 1, 2025. The AI and internet sectors have shown the highest revenue growth in three years, while high-end manufacturing and innovative pharmaceuticals are also experiencing favorable conditions [1]. AI and Internet Sector - The AI and internet sectors reported a revenue growth of 11.7% year-on-year in the first half of 2025, the highest semi-annual growth rate since 2022. Net profit increased by 33.9%, with gross and net profit margins at 36.8% and 12.0%, respectively. Capital expenditure as a percentage of revenue rose to 12.3%, indicating a sustained expansion phase [1]. - The sector is characterized by strong strategic expansion intentions and a favorable supply-demand balance, despite short-term impacts from competitive pressures [2]. New Consumption Sector - The new consumption sector achieved a revenue growth of 49% and a net profit growth of 131%, both reaching historical highs. However, the sector is currently in a "passive inventory accumulation" phase, with declining inventory turnover rates due to increased competition [3]. - Notable companies like Pop Mart and Lao Pu Gold reported revenue increases exceeding 200%, indicating a significant rise in the "self-indulgent" consumption trend [3]. Innovative Pharmaceuticals Sector - The innovative pharmaceuticals sector saw a net profit increase of 69% year-on-year, with gross profit margins rebounding to 66.3%. The sector is transitioning from a heavy sales focus to a greater emphasis on research and development, with R&D expenses rising to 16.9% [4]. - The sector is also in an "active inventory accumulation" phase, with a favorable supply-demand landscape and a recovery trend following a low point in 2022 [4]. High-end Manufacturing Sector - High-end manufacturing companies reported a revenue growth of 11.5% and a net profit growth of 29.9%, both at their highest levels in recent years. Companies like BYD, Lenovo, and Xiaomi achieved growth rates exceeding 20% [5]. - The sector is characterized by strong expansion intentions, with capital expenditure as a percentage of revenue reaching 10.0%, indicating a sustainable growth trajectory [5]. Overall Market Assessment - The overall assessment indicates a favorable trend for the AI, internet, and high-end manufacturing sectors, with strong fundamentals and supply-demand dynamics. The innovative pharmaceuticals sector shows high potential but requires attention to individual stock risks, while the new consumption sector's performance is promising but faces competitive challenges [6].

Group 1 - The Hong Kong stock market opened higher on September 5, with the Hang Seng Index rising by 0.31% and the Hang Seng Tech Index increasing by 0.42%, driven by strong performance in the technology and new energy sectors [1] - The latest "Automobile Consumption Index" released by the China Automobile Dealers Association indicates that the index for August 2025 is 83.3, higher than the previous month, with expectations for September automobile sales to exceed those of August [1] - September marks the peak season for automobile consumption, driven by wedding and school seasons, as well as increased demand for self-driving trips during the National Day holiday [1] Group 2 - Huachuang Securities reports that the domestic consumption market is entering a new phase characterized by slowing product growth and ongoing service prosperity, with trends focusing on quality-price ratio, emotional value, and overseas expansion, alongside AI applications driving product transformation and efficiency [1] - The current investment themes in the service industry include: 1) Restructuring of offline formats, with supply chain maturity becoming key to success in chain consumption [1] 2) Implementation of AI applications across various scenarios [1] 3) High demand for experiential consumption, particularly in sectors like cultural tourism and sports [1] Group 3 - The Hong Kong Consumption ETF (513230) tracks the CSI Hong Kong Stock Connect Consumption Theme Index, encompassing leading companies in internet e-commerce and new consumption, including Pop Mart, Lao Pu Gold, and Miniso, as well as tech giants like Tencent, Kuaishou, Alibaba, and Xiaomi, highlighting a strong tech-consumption attribute [2]

Group 1 - The Hong Kong stock market opened higher on September 5, with sectors such as power equipment and semiconductors leading the gains. The Hong Kong Stock Connect Technology ETF (513860) rose by 1.03%, with a premium trading rate of 0.23% [1] - The Hong Kong Stock Connect Technology ETF (513860) saw a net subscription of 35.4 million shares, with a net inflow of over 277 million yuan, reaching a historical high of 4.03 billion yuan as of September 4 [1] - The ETF closely tracks the CSI Hong Kong Stock Connect Technology Index, which selects 50 large-cap, high R&D investment, and fast-growing technology companies to reflect the overall performance of technology leaders in the Hong Kong Stock Connect [1] Group 2 - The Ministry of Industry and Information Technology and the State Administration for Market Regulation jointly released the "Action Plan for Stable Growth in the Electronic Information Manufacturing Industry 2025-2026," promoting higher-level intelligent innovation in AI terminals [2] - Dongfang Securities noted that technology is a certain main line, with increasing confidence in the industry, and the capital market is expected to have growing confidence in domestic technology industries [2] - Guotai Junan Securities indicated that the recent shift in the Federal Reserve's policy could provide a favorable macro environment for foreign capital to return to the Hong Kong market, particularly favoring technology and finance sectors [2] Group 3 -招商证券 expressed optimism about the Hong Kong stock market, suggesting a focus on industries with differentiation from A-shares, recommending a sequence of innovative drugs, internet, and new consumption [3]

Core Insights - The report highlights a weakening revenue growth for Hong Kong Stock Connect in H1 2025, with a year-on-year revenue growth rate of 1.4%, down 1.3 percentage points from 2024, while net profit growth is at 4.2%, down 3.9 percentage points from 2024 [8] - Despite the overall decline in revenue growth, there is a marginal improvement in profit growth, ROE, and net profit margin for non-financial sectors, indicating a positive trend in the context of China's economic transformation [8] - The report suggests that the fundamentals of Hong Kong Stock Connect assets are stronger in internet and new consumption sectors, while A-share assets are stronger in technology hardware and military industries [8] Industry and Company Analysis - Key industries showing improvement include computer (equipment and software development), light industry manufacturing, real estate, semiconductors, medical services, and biopharmaceuticals, with revenue and profit growth showing marginal improvements [8] - Conversely, industries such as coal and passenger vehicles are experiencing declines in both revenue and profit growth [8] - The report emphasizes the continued positive outlook for broad growth directions, noting that the Hang Seng Index and Hang Seng Technology Index saw a decline in profit growth in H1 2025, with a notable downward revision in profit forecasts since Q3 [8] Investment Opportunities - The report identifies deep value sectors with low reversal opportunities, particularly in real estate and domestic consumption companies, where some firms have cash holdings exceeding their market value [3][8] - It also points out the potential for recovery in real estate stocks driven by improving revenue and profit growth, as well as the low valuation levels in the sector [3][8] - The report recommends focusing on internet platforms with AI and new consumption characteristics, as well as innovative pharmaceuticals and medical services, which are showing continuous improvement in fundamentals [3][8]

Core Viewpoint - The recent adjustment in the A-share market is primarily due to two factors: the accelerated upward slope of previous gains and the extreme structural differentiation in the market, necessitating a short-term consolidation phase to digest these changes [1][2][5] Market Adjustment Analysis - The market has experienced an increased adjustment amplitude, with the need for a short-term oscillation to return to a "healthy bull" state, as the previous rapid gains and increased volatility have moved the market away from its stable upward trajectory [2][5] - The current market environment requires a "slow bull" phase to achieve high-quality national development and wealth effects for residents, indicating that the market should gradually rise from the bottom [2] Structural Differentiation - The extreme structural differentiation observed in the market is detrimental to the development of a "healthy bull" market, as a stable market requires multiple sectors to perform well and alternate in their upward movements [5][7] - Recent strong performances in sectors like communication and electronics have led to significant market differentiation, which is now being corrected through a pullback in these previously strong sectors [5][7] Future Focus Areas - Future attention should be directed towards sectors with strong industrial logic and sufficient emotional digestion, including Hong Kong internet, innovative pharmaceuticals, new consumption, and new energy [7][8] - The Hong Kong internet sector is expected to benefit from multiple rebound catalysts, including a potential new round of interest rate cuts in the U.S. and positive earnings reports from major companies like Alibaba [8] - The innovative pharmaceutical sector is entering a new performance release phase, supported by industry conferences and policy adjustments, while the new consumption sector is poised to benefit from structural changes in consumer trends [9][15] - The new energy sector, having lagged behind, is expected to attract funds seeking yield flexibility, especially with upcoming technological catalysts and supportive policies [15]

Market Dynamics - Since the beginning of 2024, A-shares and Hong Kong stocks have alternated in performance, with Hong Kong stocks stabilizing in Q1 driven by the internet sector, followed by new consumption and innovative pharmaceuticals in Q2, leading to a compression of the AH premium to approximately 120 by June 2025 [2] - In July and August, A-shares continued to perform strongly while Hong Kong stocks faced pressure from tightening liquidity and competition in the platform economy [2] Funding Environment - The liquidity situation is improving, with the Hong Kong Monetary Authority passively injecting liquidity in April and May, leading to a temporary drop in HIBOR to near zero; however, by late June, excess liquidity was being withdrawn, and HIBOR rose rapidly to around 4% in August [3] - The Hong Kong dollar has moved away from the 7.85 weak-side guarantee, and the HIBOR-SOFR overnight interest rate spread has returned to a normal range of about 0.36%, indicating that the most stringent phase of the funding environment is likely over [3] Fundamental Outlook - The consensus EPS forecast for the Hang Seng Index for 2025 was revised down from 6.7% in early July to 2.35% by the end of August, primarily due to lowered profit expectations in the platform economy and increased competition in food delivery [4] - However, earnings expectations for sectors such as materials and healthcare within the Hong Kong Stock Connect have been significantly upgraded, and regulatory constraints on unfair competition are expected to reduce price wars in instant retail [4] - With the release of mid-year reports and a shift in outlook for Q4 towards "AI empowerment and efficiency recovery," the internet sector is anticipated to see a rebound in expectations [4] Long-term Framework - The long-term bullish logic for A/H shares is supported by policies and wealth migration, emphasizing a balance between an effective market and proactive government intervention [5] - The dynamic balance aims to stabilize the market while enhancing capital market functions through measures such as mergers and acquisitions, registration system deepening, and attracting long-term capital [5] Structural Changes in Funding - There is a noticeable acceleration in the entry of long-term funds such as social security, insurance, and wealth management into the market, with a clear trend of increased allocation to ETFs and institutional investments [7] - The decline in deposit and wealth management yields has created an "asset shortage" environment, suggesting that both residents and institutions have room to increase their equity allocation [7] Industry and Sector Trends - Emerging sectors such as AI computing chains, semiconductor equipment and materials, military technology, innovative pharmaceuticals, and humanoid robots are advancing from technology to commercialization [8] - This trend is beneficial for platform-based internet companies in AI commercialization as well as for hard technology and its upstream supply [8] External Variables and Capital Inflow - Historically, there is a strong negative correlation between the US dollar index and the Hang Seng Index; if the Federal Reserve enters a rate-cutting cycle in September and the dollar weakens in Q4, the previously high short-selling ratio in Hong Kong stocks may trigger a short-covering rally [9] - The potential for overseas capital to flow back into A/H shares is expected to increase [9] September Outlook - The market may experience fluctuations due to external interest rates and internal expectations, but the tightest phase of the funding environment has passed, and the fundamental narrative of "AI empowerment" is set to unfold [10] - Valuations and risk premiums remain attractive, suggesting that in a "fluctuating-upward" rhythm, sectors such as technology internet (AI), innovative pharmaceuticals, high-dividend stocks, and cyclical leaders with "anti-involution" characteristics are more cost-effective main lines [10] Strategy and Allocation - The strategy focuses on capturing rebound opportunities and the main line of "qualitative change," with a shift from "price wars" to "AI efficiency" in the internet/technology sector [10] - The innovative pharmaceutical sector is viewed positively, with September being a key window for positioning [10] - In the new consumption sector, performance is prioritized, emphasizing differentiation [10] - High-dividend and "anti-involution" sectors are also highlighted, with a focus on selecting companies with stable cash flow and sustainable dividends [10] Valuation Insights - The forecasted PE for the Hang Seng Technology Index is approximately 20.3 times, which is around 30% lower than levels seen since July 2020 [11] - The Hang Seng Index's TTM PE is about 12.3 times, significantly lower than that of the S&P 500, Nikkei, and European stocks [11] - The risk premium of the Hang Seng Index relative to 10-year government bonds is about 6.4%, making it attractive to global capital [11] Core Logic - Following the mid-year reports, the impact of "involution" is weakening, and the narrative for Q4 is shifting towards "AI empowerment," with a focus on commercialization and efficiency [12] - The direction includes AI applications, advertising efficiency improvements, and collaboration in cloud and computing services [12] - The strategy emphasizes holding quality leaders with strong execution capabilities during the concentrated period of academic and medical insurance directory catalysts in Q3 and Q4 [12]