Hong Hao: Hong Kong stocks will reach new highs in the second half of the year, while the valuation adjustment of U.S. stocks has not yet ended
The chief economist of Siree, Hong Hao, stated that Hong Kong stocks are expected to perform well in the second half of the year, especially technology stocks which are more attractive. The valuation adjustment of U.S. stocks has not yet ended and needs to drop more than one-third to around 15 times to be considered reasonable. If the U.S. fiscal contraction occurs, a double whammy for stocks and bonds may arise. Hong Hao pointed out that the current valuation of U.S. stocks is still relatively high, and although there are short-term rebound opportunities, the overall market outlook is not optimistic. It is expected that economic data in the second quarter will deteriorate, and there may be a technical negative growth
According to the Zhitong Finance APP, recently, Hong Hao, chief economist at Si Rui, stated that Hong Kong stocks should perform well in the second half of the year. When choosing technology stocks, Chinese technology stocks, especially those in Hong Kong, are more attractive. As for U.S. stocks, the correction in U.S. stock valuations has not yet ended; they need to drop by at least one-third, down to around 15 times earnings, to be considered reasonable. If U.S. fiscal policy contracts rather than expands this year, and both fiscal and monetary policies contract simultaneously, it will lead to a situation similar to 2022—where both stocks and bonds suffer.
Hong Hao pointed out that U.S. stocks have fallen rapidly, creating trading rebound opportunities. This rebound will continue, but it is not a reversal of the trend. However, this trading window may last for two weeks or even longer. From a trading perspective, people should not be too pessimistic.
Hong Hao believes that U.S. stocks are still very expensive, even though they have fallen. They need to drop by at least one-third to be considered reasonable, for example, down to around 15 times earnings. Moreover, if U.S. fiscal policy contracts rather than expands this year, and both fiscal and monetary policies contract simultaneously, it will lead to a situation similar to 2022, resulting in a double whammy for stocks and bonds. Due to high inflation, interest rates need to remain high, which negatively impacts bonds. Additionally, because both monetary and fiscal policies are tightening, the stock market will also perform poorly. Therefore, technology stocks fell nearly 40% in 2022.
Furthermore, the speed at which the economic outlook data in the U.S. deteriorates may accelerate. The negative GDP growth in the first quarter was due to inventory effects, leading to a technical decline in GDP. He believes that a similar situation will occur in the second quarter, as there is still uncertainty regarding tariff negotiations. Some data in the second quarter, such as employment, working hours, wage growth, retail growth, and PMI, will show significant deterioration. Therefore, it is not ruled out that the first and second quarters may experience negative growth like in 2022, which technically indicates a recession. The probability of this happening this year is very high.
Regarding the U.S. dollar, even if the Federal Reserve cuts interest rates, U.S. rates are starting from a very high level. Therefore, the interest rate differential between China and the U.S. remains significant, and similar situations exist in Europe and Japan. This supports the U.S. dollar, but the most important factor is the flow of funds. Previously, when risk appetite decreased, U.S. stocks and the dollar fell together; now, it is not surprising that U.S. stocks and the dollar are rising together, as the dollar has become a risk asset.
Hong Hao stated that he believes Hong Kong stocks should reach new highs in the second half of the year. If choosing technology stocks, he would select some software companies, such as Google (GOOGL.US), Microsoft (MSFT.US), and Meta (META.US), which are all software and service companies. In contrast, hardware companies like NVIDIA (NVDA.US) and Apple (AAPL.US) will be significantly affected by the trade war, especially regarding tariffs and transportation.
Hong Hao feels that Chinese technology stocks, especially those in Hong Kong, are more attractive. On one hand, they are priced cheaply; on the other hand, he believes that in the context of U.S.-China competition, technology is a very important sector, and therefore more policies will be introduced to support this sector. At the same time, the consumer sector should also see some favorable policies, whether short-term consumption stimulus or long-term social security reforms, which will bring a relatively good market for consumer stocks Although there is a wave of rebound in the global market, the value and margin of safety of Chinese technology stocks are even higher
