Growth Dragons Weekly: Hong Kong Stocks Surge to 8-Month High, Yet Remain Undervalued
What happened in China this week:
Hong Kong Stocks Surge to 8-Month High, Yet Remain Undervalued
Chinese Tourists Are Back and Spending is Improving
New China Lithium Rules and Two Stocks Poised to Benefit
Luckin Coffee Expands At the Expense of Margins
Solar Demand at Record High But LONGi Green's Sales Show Only Marginal Increase Due to Lower Prices
#1 Hong Kong Stocks Surge to 8-Month High, Yet Remain Undervalued
Hong Kong stocks have risen to 8 month high due to optimism of stability after China’s various stimulus policies.
The surge can also be attributed to positive sentiment towards policy changes in East China’s real estate restrictions. Hangzhou has removed all remaining homebuying curbs to boost housing demand. Apart from Beijing, Shanghai, and Shenzhen, all other cities will lift homebuying restrictions. This easing is supported by lowered mortgage payments for certain homebuyers to ramp up demand, a policy widely seen as likely to increase housing purchases and, consequently, overall Chinese consumption. This would be instrumental for an economic recovery, which could boost stocks in other sectors.
Rising exports and imports in April have also bolstered expectations. Beijing has announced it will eliminate the dividend tax on Hong Kong-listed stocks for mainland investors, aiming to stimulate market investment. The Hang Seng Index rose by about 2.6% to 18,963 this week.
From a technical analysis standpoint (see chart below), the Hang Seng Index has rebounded from a double bottom, suggesting that the worst is over. Another positive sign is that the index is now trading above the 200-day moving average (red line), which is an indication of a bullish market. However, other indicators, such as moving averages pointing upwards and a crossover, have yet to establish themselves. Therefore, we cannot confirm that the bull run is here. It is encouraging, but the index still has more to prove. Despite the strong uptrend, the Hang Seng Index is still trading below its Covid low, suggesting that Hong Kong stocks remain undervalued.
Some Hong Kong stocks that have soared by more than 7% in the past week are listed below.
These businesses are leaders in their respective sectors. Xinyi Glass is a world-leading integrated glass manufacturer. Orient Overseas specializes in container transport and logistics services, with investments in IT and properties.
In the pharmaceutical sector, Sinopharm ranks as a top wholesaler and retailer of pharmaceuticals, healthcare products, and medical devices in China. Sino Biopharmaceutical is the largest manufacturer of prescription drugs.
In the energy sector, China Shenhua Energy specializes in coal production, transportation, and conversion, and has diversified into railways, ports, and new energy. China Resources Power excels in thermal, wind, hydroelectric, and solar energy, known as one of the most efficient and profitable integrated energy companies in China. ENN Energy, one of China's largest clean energy distributors, focuses on the construction, operation, and management of gas pipeline infrastructures, managing 259 projects across 20 provinces as of the end of 2023.
Lenovo leads globally in the PC market. Next, Tingyi, dominates China’s instant noodle and tea beverage market with its Master Kong brand. Lastly, CITIC invests in a broad range of sectors from financial services to energy and real estate.
Overall, these businesses are pivotal to the Chinese economy and are positioned as industry leaders poised to benefit from economic recovery. The real estate market, seen as a significant drag on the Chinese market in recent years, has shown signs of revival. Breakthrough housing policies are essential to stimulating demand and alleviating the negative impact on consumer wealth caused by the real estate sector.