Zhang Yidong: We are currently in a calm period of the main upward wave of the bull market. Short-term fluctuations are "healthier for a wash," which will prolong the duration of the main upward wave. In 2025 and 2026, the U.S. stock market will not perform as well as the Hong Kong stock market

On the afternoon of March 24, at the performance release conference of Xingzheng International, Chief Economist Zhang Yidong made an in-depth assessment of the Hong Kong stock market. He systematically looked ahead to the trend of the Hong Kong stock market in 2025 and interpreted the recent market adjustments.

The investment representative summarized the key points as follows:

1. In the short term, we still believe that (currently) it belongs to the calm period within the main upward wave, or the first stage of the oscillation adjustment period.

In March and April, especially from late March to April, due to the previous high volatility of assets and the influx of high-volatility funds chasing high prices, the chasing funds became a bit overly excited, which inevitably encountered some profit-taking pressure.

However, this profit-taking adjustment precisely allows the main upward wave of the bull market to last longer, which is actually beneficial for the mid-term market.

1. Attention should be paid after the earnings period, as various representative companies release their earnings, there may be a brief waiting period for the positive effects to be fully realized.

What should we focus on for the next upward breakthrough? We should pay attention to whether the Federal Reserve's interest rate meeting can lead to a rate cut, and whether some domestic policies can be implemented, which could enhance expectations for the fundamentals.

1. We believe that this calm period is essentially to alleviate investors' fear of heights, as this fear of heights is a shadow brought about by the continuous downward revaluation of the Hong Kong stock market over the past four years.

Breaking this requires the continuous advancement of the AI wave, and it may also need to exhaust the negative news.

After the negative news is priced in, by around May or June, we can look upward again, and the Hong Kong stock market may return to a new upward path. Moreover, in March and April, the Hong Kong stock market also needs to wait for the implementation of China's stimulus and expansionary policies, especially to see if fiscal policy, monetary policy, and industrial policy can exceed expectations.

If subsequent developments can exceed expectations, as early as the end of the second quarter or as late as the third quarter, we believe it can further expand the upward space for the Hong Kong stock market. Therefore, overall, do not chase high prices in terms of rhythm, but firmly believe in the logic of the bull market.

1. However, attention should be paid to the rhythm; you need to base it on the fundamentals, solidifying the market to sustain it. So how to invest around the fundamentals?

Focus on the technology bull market, firmly grasping the core assets of this AI technology trend, especially the internet platform companies represented by ATM (Alibaba, Tencent, Xiaomi) that have ecological advantages.

1. Now everyone is downplaying the index, as the main upward wave is confirmed, they begin to downplay the index, seeking the best companies within the broad AI chain in Chinese assets, which may bring opportunities of several times or even dozens of times.

2. Every fluctuation in the Hong Kong stock market is a good opportunity to strategically allocate quality assets at low points based on mid-term positioning. Zhang Yidong believes that the main upward wave of the bull market will arrive in 2025, but sometimes you need to be cautious and keep a calm mindset. Do not rush to chase prices or sell in panic, as this often leads to significant losses during a bull market.

He stated that this technology-driven bull market is the main theme of the current round of asset revaluation in China and the bull market in the Chinese stock market. Optimistically, this time China's tech assets, particularly the strongest companies, may usher in an 8-year Juglar cycle, which is an 8-year expansion period. Zhang Yidong believes that from various dimensions such as capital, valuation, policy, and fundamentals, the Hong Kong stock index will oscillate upward this year and for some time to come; it is still a strategic allocation period. In the short term, due to the seesaw effect of capital, the short-term market of Hong Kong stocks may experience fluctuations. However, once the negative factors are exhausted, it may lead to a smoother upward trend. Overall, in 2025 and 2026, the U.S. stock market will not perform as well as the Hong Kong stock market.

The following is a summary of key points organized by the investment workbook representative (WeChat ID: touzizuoyeben), shared with everyone:

Establishment of the Main Upward Wave of the Bull Market: Review - Going Long on China, Reversal Logic

Hello, investors. 2024 is the inaugural year of the Hong Kong stock bull market. In March 2024, we were among the first in the industry to issue a bullish research report on Hong Kong stocks, titled "The Spring of Hong Kong Stocks."

Then in July 2024, when many were still hesitant and somewhat doubtful, we proposed "Sowing Tears Will Surely Lead to a Joyful Harvest," suggesting that everyone should be bullish on Hong Kong stocks.

By the end of September 2024, with the introduction of a series of policy measures, the risk appetite for both A-shares and Hong Kong stocks quickly recovered. In October 2024, we specifically wrote a report titled "Going Long on China: Reversal Logic," believing that the entire market, whether in Hong Kong or A-shares, was transitioning from a rebound logic to a reversal logic.

Although there were some fluctuations in the entire market in the fourth quarter of 2024, these fluctuations are what reveal the strength of the grass in a storm. It is precisely during these fluctuations that we believe the main upward wave of the bull market will arrive in 2025 **, and this main upward wave of the bull market lies in innovation. Therefore, the investment strategy we released in early December 2024 for 2025 is titled "[**Innovation is Fire](https://mp.weixin.qq.com/s? __biz=MzI0OTU4MTM3NQ==&mid=2247495776&idx=1&sn=fb6729f0bfb4d5f4a2e27b1e63e65c45&scene=21#wechat_redirect) 》。

And this character "巳", we explained at that time, as a noun means snake, the Year of the Snake; as a verb, it means "to rise", which suggests what? It means that the market in the Year of the Snake will ignite. Indeed, after the Spring Festival, both A-shares and Hong Kong stocks, especially Hong Kong stocks, have performed exceptionally well.

In this short time, we would like to reconfirm and emphasize our bullish view on Chinese assets, particularly the fundamental logic behind our bullish view on Hong Kong stocks. This means that breakthroughs in technological innovation can be said to establish the main upward wave of the Chinese bull market.

Optimistic Scenario for the Main Upward Wave of the Bull Market: The Best Companies Will Welcome an 8-Year Juglar Cycle

Looking at history, this type of technology-driven bull market often lasts for many years, with two different scenarios: optimistic and pessimistic.

In the optimistic scenario, we can see that in the last decade, specifically the 2010s, during the mobile internet phase, starting from 2010 when Apple launched the iPhone 4, it drove a massive expansion of the smartphone industry chain, which is a business model capable of generating profit effects.

At the same time, with the increase in smartphone penetration, from around 15% in 2010 to nearly 60% in 2013, it led to a massive explosion of mobile internet.

The entire business model drove in cycles, first mobile games, then e-commerce, mobile payments, influencers selling products, and so on. Therefore, with the implementation of business models, China's mobile internet chain, starting with hardware, then software, and finally the ecosystem.

The most typical example is the core assets represented by Tencent in Hong Kong stocks during the mobile internet era, which performed remarkably, rising for nearly eight years. Correspondingly, in the U.S. stock market, the leading companies represented by "FAANG" rose from 2012 to 2020. In 2020, the U.S. faced the impact of the pandemic, and what we saw after the pandemic was not "FAANG" anymore, but M7.

What is the biggest difference between "FAANG" and M7? It is the driving force. "FAANG" is driven by the mobile internet technology wave, while M7 is actually driven by the AI wave.

Therefore, if this AI wave is significant for China, we see that the entire technological breakthrough, the rise of DeepSeek, has shifted the competition in AI from previous technical and computational power competition to application-level competition. Then China's advantages will be fully reflected.

Because we have a strong manufacturing capability, coupled with one of the largest domestic markets in the world, and the strongest mobile internet penetration. Therefore, we believe that looking ahead, the application of AI will play an important role in improving efficiency across various industries in China. This leads to the implementation of business models, which is the optimistic scenario If we look forward to an optimistic scenario, this time China's tech assets, those top companies, may welcome an 8-year Juglar cycle, which is an 8-year expansion period.

Of course, there is also a pessimistic scenario. What is the pessimistic scenario? Taking the internet in the 1990s as an example, in 1995, the internet penetration rate in the United States was around 10%, and by 2000, it had reached about 50%. Unfortunately, it never developed a decent monetization path with profitable business models.

Therefore, with the Federal Reserve's interest rate hikes from 1999 to 2000 and the weakening of the U.S. economy, the capital-driven and capital expenditure-driven market bubble burst. This pessimistic scenario could also last for several years.

Now, let's boldly assume that by this time next year, the penetration rate of large models in China will likely exceed 50%. Then we will witness an explosion of AI applications corresponding to large models.

Thus, we must pay attention to the so-called "innovation has ignited," this technology breakthrough-driven tech bull market is the main line of this round of asset revaluation in China and the bull market in the Chinese stock market.

New productive forces will be the biggest highlight of this year's economic fundamentals

On the second level, let's talk about the policy aspect.

With the central government's meeting with private entrepreneurs, we can see that private enterprises engaged in technological innovation in various fields have welcomed a spring of development. Combined with the implementation of the reform tasks from the 20th Central Committee's Third Plenary Session in 2025, especially guiding the healthy and orderly development of emerging industries. Therefore, we believe that developing new productive forces will be the biggest highlight of this year's economic fundamentals.

Macroeconomic stabilization, emerging consumption is vibrant

Returning to the macro economy, from a macroeconomic perspective, this year will generally be a relatively stable state.

Because the pain period of old driving forces represented by real estate is gradually easing. We can see that the rental yield in first-tier cities and core second-tier cities has slowly exceeded the risk-free rate of return, which indicates that Chinese housing prices will stabilize by 2025, and also suggests that the real estate-related industrial chain, as an old driving force of the Chinese economy, can stabilize. Coupled with the AI wave as a new technological driving force, it brings structural highlights to the economy and restores public confidence, boosting emerging consumption.

Overall, we believe that this year's macro economy is stabilizing, but emerging consumption is vibrant. An important part of emerging consumption includes cultural consumption, emotional consumption, AI consumption, as well as elderly care and childcare, etc. Because the post-90s and post-00s generations are gradually becoming the driving force for rapid growth in new consumption in China in the coming years.

Leading private enterprises represented by the internet, valuations will shift from "downward collapse" over the past four years to "upward reshaping"

So what else should we look at? After discussing the policy aspect, the technological driving force on the economy, and the macro economy, we also need to talk about the most important topic, which is how to view the bull market and how to view the Hong Kong capital market. **

Recently, some investors have been feeling a bit of a height phobia because for the past four years, everyone has been constrained by a bear market mentality. The valuations of some leading internet companies have returned to the highs of the past four years, but what should we see?

Compared to the valuations of the past 15 years, or even nearly 20 years, they are still at a low level. Currently, the AI field is in a typical technology diffusion period, and its commercial monetization path is not yet fully clear, which makes the explanatory power of traditional valuation metrics like PE, PEG, and PS weak and insufficient.

Therefore, we should not focus too much on these static indicators, but rather look at the issue from a developmental perspective, focusing on the improvement in the penetration rate of AI technology, the investment in R&D capital expenditures, and the application scenarios in various fields for AI applications and business models.

Thus, we believe that as AI technology gradually takes root, leading private companies represented by the internet will see their growth potential restored, and their valuations will shift from the downward collapse of the past four years to an upward reconstruction.

Since the beginning of 2021, these leading private technology companies have slowly transitioned from a growth stock valuation to a collapse in the first half of 2022, becoming deep value valuations. However, with the breakthroughs in AI and the re-emergence of policy dividends, we have seen stabilization in the Chinese economy.

This technology, particularly the leading private companies represented by the internet, will gradually change their valuation system and methods. We believe that in the future, more attention should be paid to R&D expenses and their application scenarios in various fields, while downplaying buybacks and dividends.

Emphasizing buybacks and dividends is itself a deep value logic. Conversely, once AI breakthroughs lead these leading private technology companies to regain their growth potential, we should focus more on the logic of discounted future cash flows.

In fact, even using traditional frameworks, looking at PE and PS, we see that the Hang Seng Technology Index and some leading companies within it, their valuations are still reasonable, and we even believe they are reasonably low.

As new businesses are empowered by AI, we believe that the entire Hong Kong stock market's valuation framework may return to a growth stock logic.

Capital Market: Policy Guides Social Wealth to Reallocate to the Stock Market

This is from the perspective of valuation; now let's talk about the capital market, because valuation improvement must be supported by capital. So what is our judgment now?

Over the past four years, the risk premium in the U.S. stock market has gradually declined, reflecting a very high risk appetite, reflecting the exceptionalism of the U.S., and indicating that the U.S. has reached a hidden assumption in technology. But now, with Deepseek emerging, it has broken the narrative of U.S. exceptionalism. Conversely, we are actually competing on the same playing field Therefore, high-quality technology and consumer assets in China should not have such a high risk premium. Conversely, high-quality assets in the United States should not have such a low risk premium. So this is a process of mutual movement.

In this process of mutual movement, it is precisely the sweet period for the Chinese stock market, including Hong Kong stocks, to regain the reallocation of domestic and foreign capital.

First, let's look at domestic capital. China's 150 trillion yuan of household savings is currently in a state of effective asset scarcity, with insufficient channels for effective allocation. In recent years, whether it is early repayment of mortgages or buying some money market funds or bond funds, the cost-effectiveness has been weakening.

Conversely, with the stabilization and improvement of risk appetite, we believe that equity assets will become the favorite for the reallocation of Chinese residents' assets, among which Hong Kong stocks will benefit first due to their higher cost-effectiveness.

What else do we see? Policies are also actively guiding social wealth towards equities, including Hong Kong stocks and A-shares in the Chinese stock market.

In fact, in the past few years, both A-shares and Hong Kong stocks have been actively rewarding investors, making the market a field for wealth creation rather than just a place where everyone lacks expectations for the future. Now, expectations for the future are gradually warming up and improving.

So in this context, we believe that the entire social wealth, including the social wealth of Chinese residents, bank wealth management funds, and insurance funds, will be allocated towards the highest quality Chinese assets.

Hong Kong stocks are still in a strategic allocation period, and the index will continue to fluctuate upwards

Among them, A-shares have opportunities, while Hong Kong stocks may benefit more from high-quality companies in AI and the new consumption wave, which are relatively concentrated, especially in Hengke, mainly in technology and new consumption. As for the Hang Seng Index itself, its largest weighted stock is also in technology.

Therefore, this year and for some time to come, the performance of the Hong Kong stock index may continue to fluctuate upwards. Because the quality of assets here is still in a period worth strategic allocation.

Foreign capital's reallocation to Chinese assets will gradually recover

Of course, external risk appetite is still a long-term process. The reallocation of foreign capital to Chinese assets may still be a gradual recovery process. Therefore, external risk factors, such as trade frictions and rebounds in other market conditions, may affect the pace.

However, we see that in the long run, the ultimate increase in foreign capital's allocation to Chinese assets still needs to be based on the fundamentals of Chinese assets themselves.

Every market fluctuation is a good opportunity for mid-term low-position layout

On the fundamental level, we need to downplay the macro situation, which may just be a stabilization process, neither too hot nor too cold, and not collapsing.

But here we need to pay attention to the risk appetite improvement brought by China's technological innovation, which brings some alpha opportunities for high-quality assets. Therefore, we believe that "good wine needs no bush," and in the future, foreign capital, especially non-U.S. foreign capital, may continue to increase its allocation to Chinese assets So the conclusion is that every fluctuation in the Hong Kong stock market is a good opportunity to strategically position and allocate quality assets at lower prices.

Hong Kong stocks are fluctuating upwards, and the phase of turbulence is "healthier after a wash"

Investor question: Recently, the Hong Kong stock market has warmed up, and the Hang Seng Index has gradually risen, restoring some market confidence. What is the company's outlook for the market in 2025?

Zhang Yidong: We believe that 2025 will be the main upward wave of a bull market, as the bull market begins to enter its main upward phase. However, this main upward wave does not mean a straight line upwards; it is fluctuating upwards.

On one hand, the technology bull market is the main line, with AI driving efficiency improvements across various industries, especially in TMT, advanced manufacturing, and other technology assets as a main thread. At the same time, it will also support consumption, particularly new consumption. Even leading companies in some traditional sectors and high-dividend assets can benefit from rising tides, so overall this is a fluctuating upward bull market.

However, in terms of rhythm, what do we need to adapt to? It’s called "serpentine struggles." It fluctuates upwards, but it is phase-based, not linear, and there are bumps along the way. But these bumps are often more alarming than dangerous, and can even be called "healthier after a wash." It digests external risks through short-term fluctuations and waits for improvements and repairs in the domestic economic fundamentals.

In March and April, chasing high funds inevitably face profit-taking

Now let's talk about the short term. We believe that in March and April, especially from late March to April, due to the influx of high-volatility assets and funds chasing high prices, the chasing funds have become somewhat exuberant, and inevitably face some profit-taking pressure.

Short-term profit-taking will extend the duration of the main upward wave

Recently, whether from turnover rates or the proportion of short-selling transactions in Hong Kong stocks, it reflects that short-term sentiment is high. After it becomes high, it’s like needing to splash a bucket of cold water to calm down in the summer.

Especially in April, some overseas uncertainties are more likely to trigger profit-taking adjustments. However, this profit-taking adjustment precisely allows the duration of the bull market's main upward wave to be extended, which is actually beneficial for the mid-term market.

After the earnings period, there will be a brief waiting period for profit-taking, and the next upward breakthrough node should focus on these

Recently, especially some retail funds from the mainland, including speculative funds, have shown somewhat high sentiment, so we need to pay attention to the earnings period. As various representative companies release their earnings, there may be a brief waiting period for profit-taking.

What should we focus on for the next upward breakthrough node? We should pay attention to whether the Federal Reserve's interest rate meeting can lead to a rate cut, and whether some domestic policies can be implemented to enhance expectations for the fundamentals.

Currently, it is a calm period within the main upward wave, essentially resolving investors' fear of heights

In the short term, we still believe it belongs to the calm period within the main upward wave, or the first phase of the fluctuating adjustment within the main upward wave. This short-term rebound today will not change our viewpoint. We believe this cooling-off period is essentially to alleviate investors' fear of heights, as this fear is a shadow cast by the continuous downward revaluation of Hong Kong stocks over the past four years.

Breaking the Fear of Heights Requires Exhausting Negative News

To break this fear, it requires the continuous advancement of the AI wave, and it may also need to exhaust negative news. What does exhausting negative news mean? What negative news should we pay attention to in the coming months?

First, geopolitical issues and tariff frictions in April. After Trump releases the specific content of the reciprocal tariffs in early April, we need to pay attention to whether there will be threats from Trump to third parties under the threat of U.S. tariffs, prompting third-party economies to escalate tariffs against China in an attempt to "encircle" us.

I believe that as the technology trade war continues, we are becoming more confident, and ultimately, it will be without major risks, not having a significant impact on China's economy.

However, when this trade friction occurs in April, it may still lead to some capital profit-taking. Once the negative news is exhausted, it may allow the market to move upward more smoothly, which is one aspect.

U.S. Stocks Will Underperform Hong Kong Stocks in 2025 and 2026

Secondly, the rebound of U.S. and European stock markets. Since the beginning of the year, U.S. stocks have significantly adjusted, especially the Nasdaq and the Russell small-cap index, while Hong Kong stocks and Chinese concept stocks have performed remarkably.

This adjustment may converge somewhat in late March and April, leading some capital to attempt to bottom-fish in U.S. stocks. However, we believe that in the next two years, I still judge that U.S. stocks in 2025 and 2026 will overall underperform Chinese assets and Hong Kong stocks.

From an index perspective, I believe the S&P 500 is not as good as the Hang Seng Index, and even less so than the Hang Seng Tech Index. The Hang Seng Tech Index is the leader and pioneer in this round of Chinese asset revaluation. But in the short term, due to the seesaw effect of capital, the short-term market of Hong Kong stocks may show fluctuations.

Do Not Chase Highs, Firmly Believe in Bull Market Logic

Once this negative news passes and is priced in, by around May or June, we can look upward again, and Hong Kong stocks may return to a new upward path. Moreover, in March and April, Hong Kong stocks also need to wait for the implementation of China's stimulus and expansionary policies, especially to see if fiscal, monetary, and industrial policies can exceed expectations.

If subsequent developments can exceed expectations, as early as the end of the second quarter or as late as the third quarter, we believe it can further expand the upward space for Hong Kong stocks. Therefore, overall, do not chase highs in terms of rhythm, and firmly believe in the logic of the bull market.

Firmly Grasp Internet Platform Companies Represented by "ATM"

However, it is important to pay attention to the rhythm, and you need to base your investments on fundamentals to solidify the market for sustainability. So how do we invest around the fundamentals? Focus on technology stocks, firmly grasp the core assets of this AI technology market, especially the internet platform companies represented by ATM (Alibaba, Tencent, Xiaomi) that have ecological advantages.

The internet platforms are mainly in the Hong Kong stock market, but the leading companies in the robotics-related industrial chain in the A-share market are also worth long-term allocation. Don't be afraid of declines. If it really drops, you can buy these internet companies and robotics companies when the cost-performance ratio is better.

In addition, there are other industry leaders that benefit from the increase in AI technology penetration, including semiconductors, computers, communications, and consumer electronics within TMT, as well as some new consumption sectors.

How can we leverage AI technology to bring about such changes? For example, what used to be a blind box in the millet economy can be combined with AI to transform into AI consumption, which represents a strong synergy.

From the perspective of the combination of technology and new consumption, it may bring greater unexpected elasticity, so we believe it is essential to firmly grasp the core assets of the AI technology market.

Furthermore, we should pay attention to AI's empowerment in biomedicine, education, and finance.

For this ultimate carrier, the ultimate carrier empowered by AI is like the mobile internet era, where the carrier was the smartphone, and in the internet 1.0 era, the carrier was the computer. In this wave of AI, we believe the ultimate carrier is robots. Therefore, we need to focus on the AI wave and seek core assets, patiently looking for good companies.

Finding the strongest companies in the AI chain may bring opportunities of several times or even dozens of times

Now everyone is downplaying the index because after the main rising wave is confirmed, they start to downplay the index and look for the strongest companies in the entire broad AI chain within Chinese assets. This may bring opportunities of several times or even dozens of times, which is the main line of growth.

Additionally, we say the domestic demand bull is secondary, while the technology bull is the main line. The domestic demand bull policy drivers also include military industry, new energy, brokerage, real estate, consumption, etc. They may benefit from some policy dividends, and we need to find alpha opportunities within them.

Moreover, regarding the 2025 dividend assets, we believe we should shift from the low-volatility dividend allocation logic of the previous four years to a convertible bond approach. We need to focus on their performance elasticity, using dividends as a safety margin.

So we should pay attention to operators, as well as high-quality state-owned enterprises that are unlikely to go bankrupt, especially the leading state-owned real estate stocks and the leading local real estate stocks in Hong Kong, which are worth monitoring. Additionally, leading companies in consumption and some manufacturing sectors also have convertible bond attributes as dividend assets.

In summary, we still feel it is important to respond to everyone by saying that the main rising wave of the bull market in 2025 is coming, but sometimes you need to be cautious and keep a calm mindset. Don't rush to chase highs and sell lows, as chasing highs and selling lows often leads to significant losses in a bull market. Instead, one should be patient and find the highest quality companies based on fundamentals, growing alongside the company, which is the core trick to making money in a bull market. Source: Investment Workbook Pro Author: Wang Li

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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk