CICC's Chief Overseas and Hong Kong Stock Strategy Analyst Liu Gang maintains the view that China-Hong Kong broad-based indices will continue flat volatility, particularly in the Hong Kong stock market, with the Hang Seng Index central level forecast remaining at 26,000 points. Liu explained that the direction of China-Hong Kong broad-based indices is largely aligned with the mainland credit cycle, and CICC expects the mainland credit cycle to fluctuate, which will constrain the overall index space for China-Hong Kong stock markets. This forecast, previously announced by CICC, remains unchanged as the firm sees continued alignment between market performance and mainland credit conditions.
Hang Seng Tech Index Valuation at Low Levels with Limited Downside
Liu Gang stated that the Hang Seng Tech Index (HKSTI) valuation is currently very low, with relatively limited room for further significant downward movement. From a valuation perspective, the HKSTI is not a bad trade, though its upside potential is constrained by fundamentals. For the HKSTI to become a favorable trade, Liu explained that several conditions would need to materialize: substantial improvement in corporate earnings, policies favoring consumption stimulus, aggressive AI investment by internet giants, and a rapid decline in US bond yields that would help reduce overall financing costs.
Despite these constraints, Liu believes the HKSTI has odds-based value following its previous correction. He noted that the index has reached levels where the risk-reward ratio has improved compared to earlier periods.
Long-Term Investors Better Positioned for Tech Index Exposure
Liu Gang indicated that for investors with lower cost requirements, gradual allocation to the HKSTI remains viable, particularly for long-term capital such as insurance funds. These investor types have the capacity to invest in the HKSTI over extended periods while waiting for returns to materialize. However, for mutual funds and other investors pursuing relative returns, investing in the HKSTI involves opportunity costs even if the index remains flat, as capital could potentially generate returns elsewhere.
The analyst differentiated between investor types based on their return requirements and time horizons, suggesting that the HKSTI's current valuation is more suitable for patient, long-term capital than for performance-driven funds with shorter measurement periods.
Hong Kong Tech Giants' AI Investments Underperform Global Peers
When asked why Hong Kong-listed technology giants have underperformed global counterparts despite actively deploying AI strategies, Liu Gang attributed this to the relatively ordinary performance of global hyperscalers recently. He noted that the recent gains in US AI sectors have primarily been concentrated in hardware stocks rather than cloud service providers.
Liu referenced the US experience, noting that the AI industry's advantage lies in B2B (business-to-business) applications, while many Hong Kong tech giants focus on AI applications in B2C (business-to-consumer) segments. Additionally, for Hong Kong-listed internet giants, the food delivery competition continues to have lingering potential impacts on their performance.
FAQ
What is CICC's current forecast for the Hang Seng Index?
CICC maintains its forecast that the Hang Seng Index central level is approximately 26,000 points. Chief Overseas and Hong Kong Stock Strategy Analyst Liu Gang stated this view remains unchanged, as the firm expects mainland credit cycle fluctuations to constrain the overall index space for China-Hong Kong stock markets.
Why does CICC believe the Hang Seng Tech Index has limited upside potential?
Liu Gang explained that while the Hang Seng Tech Index valuation is currently very low with limited downside, its upside potential is constrained by fundamentals. For the index to become a favorable trade, several conditions would need to occur: substantial improvement in corporate earnings, policies favoring consumption stimulus, aggressive AI investment by internet giants, and a rapid decline in US bond yields to reduce overall financing costs.
