Hong Kong stocks fluctuated and rose last week, with sectors such as technology and hardware equipment, semiconductors, and pharmaceuticals leading the way in gains. The Federal Reserve continued to suspend interest rate hikes in November, and Powell hinted that the current rate hike cycle has been ongoing for a long time. He pointed out that the Fed is acting cautiously, and the risks of excessive and insufficient rate hikes are more balanced. Therefore, some investors believe that the necessity of further rate hikes by the Federal Reserve is reduced. The rise in long-term bond yields has replaced the Federal Reserve in some rate hikes, and the market may begin to price the end of the rate hike cycle in advance. After the meeting, major indices in global stock markets rose, US bond yields sharply declined, and the US dollar index weakened. The Hong Kong stock Hang Seng Index rose 1.5% last week, the Hang Seng State owned Enterprise Index rose 1.2%, and the Hang Seng Technology Index rose 3.4%. In terms of sectors, technology and hardware equipment, semiconductors, pharmaceuticals, and other sectors that are related to improved liquidity and have greater flexibility, saw the highest gains, rising 6.8%/4.4%/3.2% respectively.
The market may have started to race and price the end of the US interest rate hike cycle, and global risk asset prices have rebounded, benefiting industries with longer 'duration'. The recently released data on the cooling of the US labor market, the weakening of manufacturing PMI and service PMI indicate that after experiencing unexpected economic growth in the third quarter, the US economy may decline in the fourth quarter. 'Weakness without decline' is the most friendly external environment, with a focus on Hong Kong stocks and US bond sensitive products in the future.
Which industries are most benefiting from the decline in US debt and the US dollar? 1) Logically speaking, the preferred choices are pharmaceuticals, electronics, and semiconductors, with both the numerator and denominator end benefiting from US bonds, followed by internet retail, where the improvement phase of the denominator end exceeds the concerns of the numerator end. 2) From the perspective of winning rate, by measuring the elasticity of various industries in the 7-cycle fluctuation of US bond yields, we can conclude that liquidity sensitive industries include pharmaceuticals (97.2%), semiconductors (94.2%), electronics (79.6%), healthcare equipment and services (81.4%), internet retail (84.3%), and non-ferrous industries such as automobiles and gold. 3) From the perspective of odds, since April, the US Treasury bond interest rate has continued to rise, with sectors such as healthcare equipment, semiconductor electronics, and internet retail leading the decline. However, non ferrous commodities such as gold did not experience a deep correction in Q3 stock prices, and it is expected that the upward elasticity may be relatively lower in this round of rebound.
The rebound space and sustainability still need to return to the corporate profit side. Currently, the domestic economy is maintaining a weak recovery trend, and the implementation of policy effects will take some time. 1) The current market environment is similar to the "Mini version" of Q42022, and the direction of Q42023Q4 breaking is the decline in US bond interest rates. More policy support is needed for the profit side, and it is expected that the rebound in this round may be weaker than the former. 2) In October, the manufacturing PMI fell below the boom and bust line, indicating that the economic recovery momentum is still insufficient. Many areas have released favorable policies for real estate, and high-frequency sales data shows obvious signs of recovery. However, it is still below the average over the years, which still poses a drag on economic recovery. A trillion yuan of new treasury bond has landed, and infrastructure investment may to some extent hedge the drag of real estate. It is expected that the subsequent economy will continue to show a moderate recovery trend.
Risk factors: 1) Domestic stable growth policies are less than expected; 2) Core inflation in the United States exceeded expectations.