Hong Hao: Future opportunities are more in value stocks, and the adjusting Hong Kong stocks are brewing a window for building positions

On October 13th, Hong Hao, Chief Investment Officer of Lianhua Capital, shared his latest views on the market during an interview.

He believes that for those who want to participate but have previously struggled to find a good entry point, now is the opportunity. Moreover, volatility will persist for a while, providing a time window for building positions.

He further mentioned that people have made a lot of money in tech stocks, and rotating some funds back into value stocks would be worthwhile (choices).

The high price-to-earnings ratios of AI companies actually reflect the growth potential that people are willing to pay for. At this price level, it should not be surprising to see the stock continue to perform well and earnings start to catch up.

Key quotes:

1. For those looking to participate in this wave, it has been difficult to find a good entry point, and the current volatility provides a time window for building positions.
2. From the recent market performance, the market itself has been strong, which should be an opportunity many are seeking to buy.
3. Investors have made substantial profits in growth stocks, and rotating some funds back into value stocks is worthwhile.
4. Regarding trade issues, there are very optimistic expectations in some blockchain prediction markets, indicating that the market is not worried about the prospects of this issue at all.
5. The Hang Seng Index around 25,000 points would be a comfortable buying opportunity.
6. Artificial intelligence will change the way we work, and the earnings of individual large chip stocks will grow rapidly from now on. Therefore, even though the current price-to-earnings ratios are extremely high, people are willing to pay a high price-to-earnings ratio for them.
7. In the past few months, sectors such as banks, insurance, and brokerages in China have not kept up with the significant gains, but these are very solid stocks with a high weight in the index.

Now is the time to build positions

Before this pullback, the Chinese stock market had been strengthening, especially in tech stocks.

I believe that for those looking to participate in this wave, it has been difficult to find a good entry point. Now is the opportunity. I also think volatility will persist for a while. But this provides a time window for building positions.

From the recent market performance, I believe the "national team" has a relatively relaxed attitude (the market itself is performing strongly). This should be an opportunity many are seeking to buy.

(Regarding trade disputes) It is natural for the market to feel concerned, but based on this year's history, it is likely that some sort of agreement will ultimately be reached. Trump will back down at this stage.

Or rotate back to value stocks

I believe people have made substantial profits in growth stocks. If you look at China's sci-tech stocks, they have risen about 80% in the past 12 months, making them the leading index globally.

I think by now, people (in growth stocks) have made a lot of money, and due to their relatively outstanding performance, it is worthwhile to rotate some funds back into value stocks.

In the past few months, with the significant rise of growth stocks, sectors such as banks, insurance, and brokerages in China have not kept up with the gains, but these are very solid stocks with a high weight in the index Therefore, as funds rotate back into these stocks, we expect these stocks to drive the Chinese index higher from here.

AI Company Earnings Will Keep Up with Stock Price Increases

In the future, everyone will chase artificial intelligence, which will change the way we work.

For some large chip stocks, we expect their earnings to double from past levels, and their earnings will grow rapidly from now on. Therefore, although the current price-to-earnings ratio is very, very high, a 200 times price-to-earnings ratio (PE) actually reflects the growth potential that people are willing to pay for.

So at this price level, it should not be too surprising to see earnings start to keep up with stock price increases. You will see the price-to-earnings ratio actually decline because the growth rate of earnings exceeds the growth rate of prices.

The Market Is Not Worried About Trade Issues

In tracking trade prospects, we can observe some indicators: such as the performance of soybeans and semiconductors mentioned earlier, as well as the Renminbi.

This morning we saw that the central parity rate of the Renminbi actually strengthened, which also means that the market is not overly concerned about (the escalation of trade disputes between both sides).

Also worth tracking are the yields on U.S. long-term bonds and China's long-term bonds.

Many of these indicators will tell you the market's thoughts, and the most direct measure includes Polymarket (Note: a decentralized prediction market platform based on blockchain).

There are bets on this prediction market regarding whether both sides can resolve these conflicts before and after the APEC summit, and the current probability is about 90%, so the market is actually quite optimistic about the outlook.

There Are Buying Opportunities in the Hang Seng Index

I believe that from now until the APEC summit, there will be some back-and-forth negotiations between both sides, which presents a buying opportunity.

In terms of risk appetite, taking the Hang Seng Index as an example, the Hang Seng Index is around 25,000 to 26,000 points, which is actually at a higher level than at the beginning of the year. You can see that the lows of the Hang Seng Index are actually continuously rising.

We feel very comfortable with the Hang Seng Index around 25,000 points; this is a buying opportunity.

Risk Warning and Disclaimer

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