Hong Kong stocks plummeted!

On May 21, the rising pace of Hong Kong stocks was suddenly disrupted.WishuponaleprechaunmegawaysYes. On the same day, the Hang Seng Index fell more than 2%, and the Hang Seng Technology Index fell more than 4% at one point in intraday trading.

Before the adjustment, the Hong Kong stock market rose sharply, with the Hang Seng Index and the Hang Seng Technology Index rising 21% and 26% respectively in just 19 trading days.

Why did Hong Kong stocks suddenly plummet today? How will it operate in the future?

Substantial adjustment of Hong Kong stock market

Today, the Hong Kong stock market opened low, and the Hang Seng Technology Index fell more than 4% at one point. By the close, the Hang Seng Technology Index was down 3%.Wishuponaleprechaunmegaways.74% at 3980.63, while the Hang Seng Index fell 2.12% to 19220.62.

The sharp fall in auto stocks hit the sentiment of the whole market the hardest. On the same day, auto stocks tumbled collectively, with the entire sector falling nearly 6%. Among them, the ideal car fell by more than 19%, Xiaopeng fell by more than 10%, and the decline came by more than 6%.

Yesterday's after-hours, ideal Automobile disclosed that the first-quarter results were lower than expected, which was the main reason for the sharp decline in auto stocks. According to the financial report, the revenue of ideal car in the first quarter of this year was 25.6 billion yuan, slightly higher than the market expectation of 25.58 billion yuan, an increase of 36.4 percent over the same period last year, but down 38.6 percent from the previous month. In terms of net profit, ideal car's first-quarter net profit was 591 million yuan, down 36.7% from the same period last year and nearly 90% month-on-month, which is far lower than the 1.63 billion yuan expected by Wall Street analysts.

Another indicator of concern is operating profit. In the first quarter, the operating profit of ideal car is-580 million yuan, and the operating profit margin is-2.3%. In the fourth quarter of last year, the ideal automobile operating profit was 3 billion yuan, with an operating profit margin of 7.3%. In addition, the ideal car cash reserve fell from 103.67 billion yuan at the end of 2023 to 98.9 billion yuan in the first quarter of this year, with a free cash flow of-5.1 billion yuan.

Looking forward to the second quarter of this year, ideal is expected to deliver 105000 to 110000 vehicles, up 21.3% and 27.1% from a year earlier, compared with the market's expected delivery of about 130700 vehicles in the second quarter. Ideal Motor expects second-quarter revenue of 29.9 billion yuan to 31.4 billion yuan, an increase of 4.2 percent over the same period last year. Subsequently, Citi lowered the target price of ideal Motor's US and Hong Kong stocks from US $43.60 and HK $167.6 to US $29.6 and HK $113.8. BofA also lowered its target price for ideal cars in Hong Kong, but maintained its buy rating.

On May 21, in the Hong Kong stock market, pharmaceuticals, insurance and other sectors also made a sharp correction. By the close, JD.com Health was down more than 8%, Ping an good Doctor and Ali Health were down nearly 7%, and Yao Ming Bio was down more than 6%. China Pacific Insurance (601601) fell nearly 5%, Zhongan online fell more than 4%, AIA and Xinhua Insurance (601336) fell more than 3%.

Technology stocks are also collectively adjusted. Bilibili fell by more than 6%, Shangtang and Baidu Group fell by more than 4%, JD.com Group, NetEase and SMIC fell by more than 3%, and Xiaomi Group and Tencent Holdings also fell nearly 3%. However, after today's trading, Xiaomi Group came good news. JPMorgan Chase released a report that raised Xiaomi's target price for Hong Kong shares. According to JPMorgan, the gross profit margin of Xiaomi's core business is expected to remain resilient, and the electric car business is expected to accelerate, raising its earnings per share forecasts for this year and next by about 14% and 2%, respectively, while raising Xiaomi's target price from HK $21 to HK $24.

The cryptocurrency ETF is stronger against the market. By the close, Huaxia 03046.HK was up nearly 19 per cent, Castrol 03179.HK and 09009.HK were up more than 18 per cent, and 03008.HK and 03042.HK were up more than 6 per cent. It is reported that the Securities and Exchange Commission (SEC) may approve spot ethernet ETFs within this week.

How can I get there in the future?

Recently, Hong Kong stocks have performed strongly, with the Hang Seng Index hitting a peak of 19,706 on May 20, approaching the 20000 mark. Since the start of the current round on April 22, as of May 20, the Hang Seng Index and the Hang Seng Technology Index have risen 21% and 26% respectively.

However, on May 21, Hong Kong stocks adjusted sharply. So, is the current round of Hong Kong stocks coming to an end? From the point of view of a number of institutions, the rally in Hong Kong stocks is likely to continue.

According to a report released by HSBC a few days ago, Chinese stocks still have room to rise, and it is still too early to make a profit. HSBC pointed out that while the Hang Seng China Enterprises Index has risen 38 per cent from its January low, historical experience suggests that the rally is likely to last for nine months, or as much as 60 per cent. HSBC said that even after the rebound, Chinese stocks are still supported by cheaper valuations, increased buybacks and lower interest rates. At present, most of the buying of Hong Kong stocks comes from the mainland, and there is still room for global funds to buy.

According to a research report released by Citic Securities on May 20, the rebound in Hong Kong stocks is driven by valuation repair after a reversal of three years of pessimistic expectations accumulated by investors. Compared with late January this year, the current liquidity and trading environment of Hong Kong stocks have been significantly improved, and the performance-to-price ratio of valuation and performance matching dimension is still significant.

According to Citic Securities, the four major momentum driving the current rebound in Hong Kong stocks can be classified as follows: 1. Mitigation of external disturbances (geographical and liquidity expectations); 2. The cohesion of domestic policies (five cooperation and real estate policies towards Hong Kong); 3. Expectations of tax relief for Hong Kong stock dividends (such as landing, it is expected to catalyse southbound capital inflows); 4. Re-recognition and pricing of the growth stocks of Hong Kong stocks. Compared with the three rounds of pessimistic expectations in 2022 to reverse the rebound of Hong Kong stocks, CITIC Securities (600030) judged that the current market value repair of Hong Kong stocks is still resilient, and suggested paying attention to three main lines: 1. Large financial sectors, particularly insurance and real estate chains, that have benefited from continued policy launches and reversals of pessimism; 2. Valuation repair is expected to continue in the consumer and technology industries; 3. Consumer electronics benefit from the trade-in of domestic consumer goods, the replenishment of inventories in the United States and the improvement of the industry.

Huachuang Securities said that recently, Hong Kong stocks continued to strengthen, Hang Seng AH share price gap has been narrowing. At present, the driving force of the Hong Kong stock market is mainly due to the repair of its own assets EPS (earnings per share) and the recovery of foreign capital's willingness to allocate "high cut and low", while the continuous policy easing signals, including real estate, have further stabilized the expectation of EPS improvement. Benefiting from the policy catalysis, it is optimistic that the Hong Kong stock market continues to pick up, and is optimistic about dividends and growth.

Yan Zhaojun, a Sino-Thai international strategist, pointed out in the strategy weekly report released on May 20th that the current Hong Kong stock valuations have been substantially repaired, and the risk premium of the Hang Seng Index and the MSCI China Index have been lower than the rolling two-year average of two standard deviations. Follow-up policy catalytic density is expected to decline, the market may change from unilateral uptrend to high platform shock.