Zhongtai International: Hong Kong stocks will take advantage of the short-term pullback to exchange time for space

According to the Zhitong Finance APP, Zhongtai International released a research report stating that in the short term, with the rebound of the US dollar index and the valuation repair of Hong Kong stocks in place, the market faces certain technical correction pressure. However, the overall upward trend of Hong Kong stocks remains unchanged, with active trading, continuous inflow of Hong Kong Stock Connect funds, and a low short-selling ratio indicating that market sentiment remains warm. Domestic policy support, the continuation of corporate profit improvement trends, and positive capital flows resonate, suggesting that Hong Kong stocks are expected to continue a gradual upward trend in the medium term under the support of fundamentals and policies. Technically, the Hang Seng Index is expected to have certain support around 24,500 points in the short term.

In terms of overseas markets, US stocks have entered the seasonal off-peak period in August and September, coinciding with the decline of the ISM PMI in July and weak non-farm data, which provide opportunities for profit-taking or even short-selling. The S&P 500 Index and Nasdaq turned around last Thursday, with a more significant decline last Friday. The market breadth of the S&P 500 Index accelerated to a new low since the end of April, indicating that this round of adjustment has officially started. Although expectations for interest rate cuts have risen, the current valuation of US stocks is relatively high. Additionally, concerns about an economic recession have reignited, with the yield on the 10-year US Treasury rapidly declining to around 4.24%. Short-term yields may experience a technical rebound correction, but the core contradictions in the medium term have shifted.

Zhongtai International's main viewpoints are as follows:

Hong Kong Stocks: In July, both the official manufacturing and non-manufacturing PMI in China showed marginal slowdown, indicating that the economy is still recovering but with fluctuating rhythms.

With the rebound of the US dollar index and the short-term repair of Hong Kong stock valuations in place, the market faces certain technical correction pressure. However, the overall upward trend of Hong Kong stocks remains unchanged, with active trading, continuous inflow of Hong Kong Stock Connect funds, and a low short-selling ratio indicating that market sentiment remains warm. The Politburo meeting in July reiterated that macro policies will continue to exert force. Although it is difficult to see unexpected total stimulus in the second half of the year, structural policies targeting expanding domestic demand, promoting consumption, new productive forces, industrial upgrading, urban renewal, and social security will continue to exert force, which is expected to enhance the quality and efficiency of economic recovery. At the same time, the third round of trade talks between China and the US has been extended by 90 days, and both sides are expected to continue discussions around core issues such as "re-export" and "technology for resources," entering a window for adjustment in the short term, with caution advised as the negotiation process may experience fluctuations again.

Overall, domestic policy support, the continuation of corporate profit improvement trends, and positive capital flows resonate, suggesting that Hong Kong stocks are expected to continue a gradual upward trend in the medium term under the support of fundamentals and policies. Technically, the Hang Seng Index is expected to have certain support around 24,500 points in the short term. In terms of sectors, it is recommended to focus on areas benefiting from policy support and the upward resonance of the industrial cycle, such as semiconductors, computing infrastructure, AI applications, and robotics.

US Stocks: US stocks have almost "exhausted the good news," with market breadth diverging from the index since July, indicating signs of adjustment.

US stocks have entered the seasonal off-peak period in August and September, coinciding with the decline of the ISM PMI in July and weak non-farm data, which provide opportunities for profit-taking or even short-selling. The S&P 500 Index and Nasdaq turned around last Thursday, with a more significant decline last Friday. The market breadth of the S&P 500 Index accelerated to a new low since the end of April, indicating that this round of adjustment has officially started. Although expectations for interest rate cuts have risen, the current valuation of US stocks is relatively high, with the forecast PE of the S&P 500 reaching 22 times, compared to only 16 times in 2018 and 20 times in July 2024, indicating a significant tendency to first leverage concerns about recession The Ministry of Finance has adjusted the liquidity withdrawal events to 6,050 points before re-energizing upwards. Strategically, focus on the reallocation opportunities at 6,050 points for the S&P 500 Index and 20,000 points for the Nasdaq, with a preference for banks, semiconductors, software, and industrials as cyclical stocks.

U.S. Treasuries: The U.S. non-farm payrolls for July were weaker than expected, coupled with the ISM Manufacturing Index and the final value of the University of Michigan Consumer Confidence Index for July both falling short of expectations, reigniting market concerns about an economic recession. The yield on the 10-year U.S. Treasury quickly declined to around 4.24%. Short-term yields may experience a technical rebound correction, but the core contradictions in the medium term have shifted: First, the actual stickiness of inflation after tariffs are implemented (although the trade agreement partially alleviates pressure, the effectiveness remains to be seen); second, the independence of the Federal Reserve is under challenge—hawkish board members abruptly resign, and senior labor statistics officials are dismissed, compounded by pressure from Trump, making it more difficult for Powell to maintain a hawkish stance.

The current economy is indeed cooling (such as a contraction in manufacturing employment), but stable hourly wages, resilient consumption, and corporate profits do not support a short-term recession. Strategically, focus on technical rebound opportunities in the short term, while in the medium term, as the interest rate cut window approaches (with an increased probability of a rate cut in September) and the trend of economic cooling is confirmed, the downward direction of the yield center remains unchanged, suggesting to accumulate long positions on dips. Pay close attention to signals of policy disturbances and the path of core inflation.

U.S. Dollar Index: The U.S. Dollar Index strengthened and briefly broke above 100 due to smooth negotiations, economic data releases, and the hawkish stance of the Federal Reserve, but after the significant downward revision of the July non-farm payrolls and weak new job additions, the dollar index retraced more than half of its weekly gains in a single day. The core contradictions facing the dollar have shifted to threefold pressures: weakening economic momentum, risks to policy independence, and the game of inflation stickiness. The market currently sees an approximately 80% probability of a rate cut in September, and the medium-term downward pressure on the dollar remains. In the short term, the dollar index may experience a rebound after data disturbances, but the rebound space is constrained by economic cooling and a crisis of policy trust, continuing to monitor economic data and statements from Federal Reserve officials to validate the rate cut path.

U.S. Dollar to Offshore Renminbi: Last week, the offshore renminbi fell to 7.22 under the influence of the dollar, but the midpoint remained stable, confirming the intention to support the policy. Coupled with the extension of tariff exemptions in U.S.-China negotiations entering a negotiation adjustment window, external pressures are controllable in the short term. If the dollar experiences a short-term technical rebound, the renminbi may be passively pressured to test the 7.18 policy ceiling. It is expected to continue oscillating in the 7.15-7.20 range in the short term, with the focus shifting to domestic policy coordination and the progress of subsequent U.S.-China consultations.

Risk Warning: The international situation is complex and changeable; policy effects may be less than expected; geopolitical risks are increasing