CMSC: Southbound funds have returned to net inflows. The probability of the Hong Kong stock market continuing to fluctuate upwards is still relatively high.

CMSC released a research report stating that looking ahead, there is still a high probability of the Hong Kong stock market experiencing volatile upward movement. The current valuation of Hong Kong stocks is still relatively low compared to other major markets, providing a good margin of safety for the market. Although external liquidity constraints have not been resolved, the resilience of US inflation and the upward pressure on US bond yields will continue to suppress the valuations of growth stocks. However, Hong Kong stocks have already fully reflected some pessimistic expectations in the recent past, so the potential for further sharp declines is relatively limited. Key points from CMSC: Updated view on Hong Kong stocks: Looking ahead, there is still a high probability of the Hong Kong stock market experiencing volatile upward movement. The upward drive mainly comes from three aspects. First, moderate recovery in domestic price data has alleviated market concerns about price levels, and there is marginal room for improvement in corporate profit expectations. Second, high-level interactions between China and the US have reduced short-term geopolitical tail risks. If there are substantial developments in trade, energy, aviation, financial opening, and chip supply, market risk appetite will continue to improve. Third, the AI industry trend remains clear, and the capital expenditures, revenue guidance, and commercial progress of leading companies like Alibaba and Tencent provide important valuation support for the technology sector. Market performance last week: Last week, Hong Kong stocks saw more declines than gains, with the Hang Seng Index falling by 1.63% and the Hang Seng TECH Index dropping by 3.17%. The AH premium dropped to 118.14. By industry, last week saw more declines than gains in major Hong Kong industries, with utilities and telecommunications rising while materials lagged behind. Micro-funds: Last week, Hong Kong funds and southbound funds saw net inflows, while foreign funds saw net outflows. 1) ETFs listed in Hong Kong saw net inflows of 2.293 billion Hong Kong dollars, totaling 48.795 billion Hong Kong dollars since the beginning of the year. 2) Using EPFR fund flows as a proxy variable, foreign funds saw net outflows of 1.90 billion US dollars last week, totaling 6.49 billion US dollars since the beginning of the year. 3) Southbound funds saw net inflows of 9.3 billion Hong Kong dollars, with a turnover ratio of 22.4%. By industry, southbound funds mainly flowed into the financial and telecommunications sectors last week. Hong Kong liquidity changes: Hong Kong market interest rates remained stable, with overnight Hibor at 2.43%, 3-month Hibor at 2.88%, and the USD to HKD exchange rate at 7.83, gradually approaching the weak side exchange guarantee. Overseas important liquidity changes: Last week, the US 2-year Treasury bond yield was 4.09% (up 19 bps); the 10-year Treasury bond yield was 4.59% (up 21 bps). Overnight secured funding rate SOFR stood at 3.58% (down 3 bps), while the SOFR-excess reserve rate (IORB) spread narrowed to -0.07% (down 3 bps), indicating easing liquidity. Risk warnings: Economic data and policies falling short of expectations, overseas policies tightening beyond expectations.