Huatai Securities: Three Major Factors Contributing to the Recent Resilience of the Hong Kong Stock Market

Ask AI · How will the AI catalyst in the internet sector manifest after the short-squeeze?

As global markets experience high volatility due to geopolitical tensions and high oil prices, the geopolitically sensitive Hong Kong stock market is performing well against the trend. The Hang Seng Internet ETF (513330) has rebounded since the bottom in early March, with a price increase of 5% over the range, gradually rising above the 5-day and 10-day moving averages, with a test of the 20-day resistance level in the future.

On March 17, a recent research report from Huatai Securities analyzed that there are three reasons for the resilience of the Hong Kong stock market:

1) The Hong Kong stock market’s current round of adjustment came relatively earlier, especially since large-cap stocks have been correcting since the fourth quarter, placing their valuations at mid-to-low levels compared to other global markets.

2) The Hong Kong stock market has a large number of high-dividend and cyclical varieties, which make up nearly half of the Hang Seng Index and about 40% of the Hong Kong Stock Connect, benefiting from the current defensive and energy price increase trading characteristics.

3) Short covering. Previously, the Hong Kong stock market, particularly the Hang Seng Technology Index, accumulated a significant amount of short positions during the extended pressure. Before the geopolitical shocks in March, the overall short position/market value ratio was approximately 2.44%, reaching a historical high. With global market volatility significantly increasing, the risk-reward ratio of long-short leveraged trading has declined, leading some short sellers to cover their positions in the past two weeks, providing support to the market.

The covering of short positions also indirectly indicates the clearing of short-selling power in the short term. Moving forward, the performance of leading internet stocks and the reassessment of AI application values will bring new catalysts to the Hong Kong internet sector. Related ETFs: Hang Seng Tech Index ETF (513180.SH), Hang Seng Internet ETF (513330.SH).

These ETFs are the largest in terms of the same underlying index, both listed on the mainland stock exchanges, and serve as a convenient tool for A-share investors to easily access the Hong Kong technology index without the hassle of opening cross-border accounts, currency conversion, and stock selection.

[Note: Removed the references to “Hong Kong Stock Connect” and “Daily Economic News” as suspicious entities.]