On October 14th, the three major Hang Seng Indexes continued to adjust. As of the close, the Hang Seng Index fell by 0.75%, closing at 21,092.87 points; the Technology Index fell by 1.43%, closing at 4,668.18 points; and the China Enterprises Index fell by 0.54%, closing at 7,579.94 points. With improvements in policy, funding, and fundamentals, the Hang Seng Index welcomed an unexpected rise around the National Day holiday.

Although the market has shown a certain trend of correction at present, and the subsequent market direction is still uncertain, it can be affirmed that with the Federal Reserve "striding" into the interest rate reduction cycle and the domestic timely introduction of a series of heavy monetary policy support measures, it is expected that the Hang Seng Index will benefit from the improvement of liquidity both domestically and internationally, as well as the global capital rebalancing, and the environment of the Hang Seng Index market may undergo significant changes.

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Fiscal policy may "take over" to exert force.

The entire market is focusing on the Ministry of Finance's press conference held on October 12th. The press conference introduced that on the basis of accelerating the implementation of the determined policies, the Ministry of Finance will introduce a package of targeted incremental policy measures around stable growth, expanding domestic demand, and resolving risks in the near future. At the same time, other policy tools are also under study, and the central finance still has a larger debt space and deficit increase space.

This press conference conveyed the government's positive side in fiscal policy. In addition to the planned high-scale fiscal expenditure, it also reserved space for future fiscal policy to exert more force. However, there is still some uncertainty in the content of the press conference, including not mentioning specific plans to further promote consumption, and not revealing the scale of the overall fiscal policy and the leverage space of central finance, and the specific expansion range still needs to be observed.

CICC believes that the October 12th State Council Information Office press conference on fiscal policy also conveyed a strong signal, especially from the perspective of underwriting risks. However, compared with market expectations, there is still a "gap" in specific scale and investment direction. In the short term, it is recommended to continue to focus on the structural opportunities of the Hang Seng Index with advantages. Even if the market fluctuates, it is more resilient, and dividend assets may also benefit from market fluctuations and the introduction of the central bank's new swap facility. If subsequent policies continue to be realized, especially if the fiscal strength exceeds expectations, the directly benefited cyclical sectors are expected to outperform.

Looking at it from a longer perspective, with October 8th as the watershed, accompanied by the reasonable cooling of personal investors and leveraged funds, the revaluation of Chinese assets may move from the policy turning point period to the policy verification period. The direction of the market's fluctuation center may depend on whether credit can stop falling and stabilize, that is, 1) whether real estate leading indicators can continue to improve, and 2) whether fiscal deployment can follow in a timely and strong manner. From the expectations survey of real estate brokers in the past two weeks and the attitude of the Ministry of Finance's press conference on October 12th, both are developing in a positive direction. Referring to past patterns, in the second stage of policy verification, if credit stabilizes as expected, and long-term configuration funds enter the market in a gradual manner, then the index fluctuates upwards, and the sector presents a sharp differentiation. The importance of choosing the line gradually becomes stronger than choosing the time.

How to establish the investment logic of the Hang Seng Index market at this point?

After the "astonishing" surge at the end of September, especially during the National Day holiday, the overdraft of emotions and the cooling of policy expectations led to a significant correction in A-shares and Hang Seng stocks, basically erasing all the gains during the holiday. After the correction last week, market sentiment has cooled down, and valuations have returned to a relatively low level. Considering that there will be certain incremental policies in the future, the market may fluctuate and digest at the current position, waiting for new catalysts. However, the advance entry of internal expectations, and the reality that the most relaxed environment provided by the external Federal Reserve to our country may have passed, have highlighted fiscal policy to a more important position. The State Council Information Office's press conference on fiscal policy on Saturday also conveyed a strong signal, especially from the perspective of underwriting risks. However, compared with market expectations, there is still a "gap" in specific scale and investment direction. If the subsequent scale meets expectations, it is expected that the market can obtain certain support and fluctuate and turn to structural market conditions at the current level.In the short term, it is recommended to continue focusing on the structural opportunities in the Hong Kong stock market that have advantages, even if the market is volatile, it is more resilient, such as the growth of Hong Kong's internet technology, and the export chain that benefits from the repair of the US real estate chain. This is also the most certain intersection under the current China-US cycle "turning point". Dividend assets may also benefit from market volatility and the introduction of the central bank's new swap facilities. If subsequent policies continue to be realized, especially if fiscal strength exceeds expectations, the directly benefited cyclical sectors are expected to outperform.

For the Hong Kong stock market, due to its international nature, it is more affected by the domestic economic fundamentals on the numerator side, and more affected by the Federal Reserve's policy on the denominator side. Industry institutions have stated that as the Federal Reserve "strides" into the interest rate reduction cycle, and domestic policies introduce a series of major monetary policy support measures in a timely manner, it is expected that the Hong Kong stock market will benefit from the improvement of liquidity both domestically and internationally, as well as the global capital rebalancing, ushering in a phased rise.

BOCI issued a report stating that in the past two weeks, the transaction amount of the Hong Kong stock market has reached a historical high. The current funds flowing into Hong Kong stocks are mainly trading funds and passive funds, and the market will still show greater volatility in the short term. The bank believes that a more flexible monetary policy and a comprehensive and proactive fiscal policy combination are key to promoting economic growth and improving the fundamentals of listed companies, which will help repair stock market valuations. The bank remains optimistic about the prospects of the Hong Kong stock market in the fourth quarter. In terms of the main investment strategy, investors are advised to pay more attention to large bank stocks, large state-owned real estate enterprises, leading construction enterprises, and high-quality consumer stocks in the short term.

Compared to the overall market, the "certainty" factor of Hong Kong's central state-owned enterprises is more significant, with characteristics of low valuation, low volatility, high dividend rate, and high cash flow. The Hong Kong state-owned enterprise ETF (513810) closely tracks the Hong Kong "China Special Evaluation" investment main line, focusing on the five major state-owned banks, three major communication service providers, "three barrels of oil" and other large market value industry leading stocks. The Hong Kong state-owned enterprise ETF (513810) tracks the CSI Hong Kong Mainland State-owned Enterprise Index (H11153), focusing on Hong Kong's low valuation and high dividend rate targets:

1) Perfectly covers the main traditional industries, with a higher weight of large market value stocks: According to the Shenwan first-level industry classification, the bank sector of the CSI Hong Kong Mainland State-owned Enterprise Index has the largest weight, accounting for 38.1%, while petroleum and petrochemicals and communications account for 15.3% and 13.4% respectively. The CSI Hong Kong Mainland State-owned Enterprise Index includes 40 stocks of state-owned enterprises listed in Hong Kong, all of which are included in the Shanghai-Shenzhen-Hong Kong Stock Connect. The selected stocks are all well-liquidated targets, with a higher weight for large market value stocks.

2) Focuses on industry leaders, with a higher concentration of the index: The top ten components of the index cover the leading enterprises in various sub-segments, including large market value leaders such as Industrial and Commercial Bank of China, China Mobile, and China National Offshore Oil Corporation. Looking at the concentration of the index, the total weight of the top ten components is 63.58%, indicating a higher concentration of the index.

3) Lower valuation, higher dividend: As of October 14, 2024, the valuation of the CSI Hong Kong Mainland State-owned Enterprise Index is 6.47 times, far lower than the Shanghai-Shenzhen 300's 13.19 times, the CSI 500's 24.23 times, the CSI 1000's 36.16 times, and the mainland private index's 22.34 times. As of October 14, 2024, the dividend yield (last 12 months) of the CSI Hong Kong Mainland State-owned Enterprise Index is 6.27, far higher than the mainstream broad-based indices such as the Shanghai-Shenzhen 300, CSI 500, and CSI 1000, with a more obvious high dividend advantage.