Recently, Chinese assets have ushered in an outbreak, Hong Kong stocks have risen sharply, the Hang Seng China Enterprises Index has entered a technical bull market, global funds are returning to the Chinese market, and the "long China" transaction is back?
On April 10, Hong Kong stocks rose sharply, and the Hang Seng China Enterprises Index rose more than 2% to 6016.83 points, up 20% from the stage low set in January, entering a technical bull market.
Overnight in the U.S. stock market, Chinese assets exploded, and the Nasdaq China Golden Dragon Index rose 1.68%. At present, the Nasdaq China Golden Dragon Index is trading at a price-to-earnings ratio of only 20 times, while the US Nasdaq Index is trading at a price-to-earnings ratio of 30 times.
China Internet ETFs continued to rise, with all four China Internet ETFs rising about 2.5% today. According to the data, according to the 2023 earnings expectations, the valuation of Chinese Internet stocks will be 15.7 times in September 2023 and 14.2 times in December 2023, and it will have dropped to around 13 times in March 2024, which is at a low level.
At the same time, Singapore's iron ore futures price posted its biggest two-day gain in more than two years, and the analysis pointed out that the change was mainly due to the positive outlook for steel demand and production growth in China, the world's second-largest economy.
The attractiveness of U.S. stocks is gradually disappearing
In a recent report, Hongze Research pointed out that the U.S. economic data is strong, the expectation of interest rate cuts continues to be frustrated, the attractiveness of U.S. risk assets, especially U.S. stocks, is gradually disappearing, and the risk-return ratio of investing in U.S. stocks is decreasing.
At a time when inflation expectations are returning, market expectations for Fed rate cuts are facing a "collapse", and the Fed funds futures December contract now shows that the rate cut is expected to be about 60 basis points this year, compared to about 150 basis points in early 2024.
Amid the reversal in interest rate cut expectations, the U.S. stock market has clearly shown a "non-moving" trend: the Dow Jones Industrial Average fell 2.3% last week, its worst weekly performance since March 2023. The S&P 500 fell nearly 1% last week, its biggest weekly decline since early January.
Data from Goldman Sachs showed that hedge funds sold global equities for the second week in a row last week, driven almost entirely by short selling, the biggest sell-off by hedge funds since mid-January.
Wall Street News previously analyzed that this week's rally in U.S. stocks will also face key tests: first, whether overheated inflation data will kill interest rate cut hopes again, and second, the earnings season of U.S. stocks in the first quarter kicked off, and whether the profitability and prospects of companies can support the current high valuation.
The value for money of Chinese assets is starting to come to the fore
Morgan Stanley said in its latest report that global funds are returning to the Chinese stock market, and as the bearish sentiment of some funds on the Chinese market has eased, the withdrawal of global long-term investors from the Chinese stock market (A-shares and Hong Kong stocks) has pressed the pause button.
Hongze Research pointed out in the report that compared with U.S. stocks, it is more cost-effective to invest in the Chinese stock market, and the Chinese stock market is more attractive, especially optimistic about Hong Kong stocks.
Zhang Yidong, chief strategy analyst of Industrial Securities, said that Hong Kong stocks have experienced the "coldest winter" of declining confidence, and assets with a high winning rate may lead the "spring return to Hong Kong stocks".
As of March 20, 2024, the Hang Seng Index has a calculated risk premium of 9.48% to China's 10-year Treasury yield, near its highest since 2008, and the Hang Seng Index has a calculated risk premium of 7.50% to the US 10-year Treasury yield. Compared with other major stock markets around the world, as of March 20, 2024, the risk premium of US stocks is even negative, with the risk premium of Japanese stocks being only 2.76% and the risk premium of European stocks being only 4.34%.
In addition to the risk premium of Hong Kong stocks, Zhang Yidong pointed out that compared with the valuation of representative stocks of Hong Kong stocks and similar stocks in the United States, Hong Kong stocks have a significant discount.
Taking the technology industry as an example, the PE valuation of Hong Kong stocks Tencent, Alibaba, JD.com, NetEase, and Baidu is in the range of about 8-16 times, and the PEG is between 0.7-2 times, while the PE valuation of US stocks Google, Microsoft, Facebook, and Amazon is between 20-40 times, and the PEG is in the range of 1-2 times.
A number of foreign institutions have recently released reports, invariably pointing out that as China's economy recovers, overseas liquidity crunch tends to ease, cross-border investment and financing facilitation continues to improve, and corporate governance gradually improves, Chinese assets will attract more and more foreign investment.
Recent macroeconomic data from China showed that China's economy is forming a potential bottom, with China's March manufacturing PMI returning to expansion territory in six months, the services PMI also hitting its highest since June, and a factory index in the S&P Global PMI reaching a 13-month high.
More than 90% of emerging market funds are adding to China's stock market, with global investors netting Chinese mainland stocks through Stock Connect for two consecutive months in February and March, the last time this was in June and July last year, according to HSBC's latest data.
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