China Galaxy Securities: Federal Reserve rate cut in place, Hang Seng Technology leads global equity index.

China Galaxy Securities released a research report stating that the current valuation percentile of the Hong Kong stock market is at a historically high level. Looking forward, it is expected that the overall market of the Hong Kong stock market will fluctuate upwards. In terms of allocation, it is recommended to focus on the following sectors: (1) sectors with policy and industry advantages, such as the AI industry chain, lithium batteries, and service consumption sectors; (2) with the Mid-Autumn Festival and National Day holidays approaching, the activity of the tourism-related sectors is expected to increase; (3) with the Federal Reserve cutting interest rates and ongoing discussions between China and the US, market risk appetite is expected to rise, and technology stocks with greater elasticity are likely to receive favorable funding. The main points of China Galaxy Securities are as follows: This week's performance of the Hong Kong stock market (1) This week (September 15th to September 19th), major global stock indices witnessed mixed gains and losses. Among them, the three major Hong Kong stock indices collectively strengthened, with the Hang Seng Index rising by 0.59% to 26,545.10 points, the Hang Seng Technology Index rising by 5.09%, and the Hang Seng H-Share Index ETF rising by 1.15%. (2) Industry-level performance of the Hong Kong stock market: this week, 4 industries rose, while 7 industries fell. Among them, the industrial, consumer discretionary, and information technology sectors led the gains, rising by 6.08%, 3.57%, and 1.90% respectively; while the financial, utility, and material sectors experienced the biggest declines, falling by 3.60%, 2.59%, and 2.19% respectively. Looking at the sub-industries, the electrical equipment, semiconductor, automobile and parts, consumer retail, and coal industries led the gains this week, while non-bank financials, paper and packaging, construction materials, real estate investment trusts, and banks led the declines. Liquidity of the Hong Kong stock market this week (1) The average daily turnover of the Hong Kong Stock Exchange this week was 347.20 billion Hong Kong dollars, an increase of 44.09 billion Hong Kong dollars from the previous week. The average daily short-selling amount this week was 32.85 billion Hong Kong dollars, a decrease of 1.91 billion Hong Kong dollars from the previous week; the average daily proportion of short-selling amount to turnover was 9.35%, down 2.03 percentage points from the previous week. (2) The cumulative net inflow of southbound funds this week was 36.51 billion Hong Kong dollars, a decrease of 23.71 billion Hong Kong dollars from the previous week. Valuation and risk appetite of the Hong Kong stock market (1) As of September 19th, the PE and PB ratios of the Hang Seng Index were 12.04 times and 1.23 times respectively, with an increase of 0.02% each from the previous Friday, placing them at the 86% and 89% percentile levels since 2019. The PE and PB ratios of the Hang Seng Technology Index were 23.86 times and 3.49 times respectively, placing them at the 34% and 74% percentile levels since 2019. (2) As of September 19th, the 10-year US Treasury yield rose by 8 basis points to 4.14% compared to the previous Friday. The risk premium of the Hang Seng Index was 4.17%, equivalent to the mean (3-year rolling) minus 2.18 times the standard deviation, placing it at the 4% percentile since 2010. The 10-year Chinese government bond yield rose by 1.19 basis points to 1.8789%, resulting in a risk premium of 6.43% for the Hang Seng Index, equivalent to the mean (3-year rolling) minus 2.0 times the standard deviation, placing it at the 41% percentile since 2010. (3) As of September 19th, the Hang Seng Shanghai-Hong Kong Stock Connect AH share premium index decreased by 2.06 points to 117.11 compared to the previous Friday, placing it at the 9% percentile level since 2014. Investment outlook for the Hong Kong stock market On the overseas front, on September 17th, the Federal Reserve announced its interest rate decision, with the FOMC deciding to lower the federal funds rate target range by 25 basis points to 4%-4.25%, marking the first rate cut of the year and resuming rate cuts after a 9-month hiatus. Powell stated that the 25 basis points rate cut aims to address economic growth slowing down and rising employment risks, and future decisions will be made based on data at each meeting. US job growth has slowed down, and employment downside risks have increased. Expectations for a Federal Reserve rate cut have strengthened, boosting market risk appetite. Domestically, China released economic data for August. In August, the national industrial value-added value increased by 5.2% year-on-year and by 0.37% month-on-month, the service industry production index increased by 5.6% year-on-year, the total retail sales of social consumer goods increased by 3.4% year-on-year and by 0.17% month-on-month. From January to August, national fixed asset investment increased by 0.5% year-on-year, with manufacturing investment increasing by 5.1% and real estate development investment decreasing by 12.9%. Looking ahead, it is recommended to focus on the following sectors in the Hong Kong stock market: (1) sectors with policy and industry advantages, such as the AI industry chain, lithium batteries, and service consumption sectors; (2) with the Mid-Autumn Festival and National Day holidays approaching, the activity of the tourism-related sectors is expected to increase; (3) with the Federal Reserve cutting interest rates and ongoing discussions between China and the US, market risk appetite is expected to rise, and technology stocks with greater elasticity are likely to receive favorable funding. Risk warnings: Risks of domestic policy intensity and effectiveness falling short of expectations; risks of overseas rate cuts falling short of expectations; risks of unstable market sentiment.