Hang Seng Bull Market "Battery" Theory Validated by Data, Institutions Warn of High Volatility in August

The latest research report by Zhang Yidong's team at Industrial Securities, titled Focus on Opportunities, Volatility is the Battery of a Long Bull Market, points out that the Hong Kong stock market is entering a long-term bull market channel. Investors are advised to seize structural opportunities in the second half of the year, with a focus on the technology and new consumption sectors.

Market Performance Confirms Bull Market Outlook

Since the beginning of this year, Chinese stocks have performed remarkably well in the global capital markets. Data shows that in July, the Shanghai Composite Index, Hang Seng Index, and Hang Seng Tech Index were among the top performers in global asset classes. Zhang Yidong's team has remained bullish on Hong Kong and A-shares since last year, and their forward-looking prediction of "the bull market entering its main uptrend by 2025" is being validated by the market.

Southbound capital continues to flow into the Hong Kong market, serving as a key driver of the rally. As of July 31, the net purchase of southbound funds this year reached HK$866.842 billion, a record high since the launch of the Stock Connect program. Notably, the proportion of Stock Connect turnover to main board turnover rose to 27.5% in July, also setting a new historical record. The market value held by international intermediaries also increased by 0.5 percentage points month-on-month to 43.8%.

Zhang Yidong's team believes that a Fed rate cut is imminent. The latest U.S. employment data fell short of expectations, while core inflation remained moderate, creating conditions for a shift in monetary policy. The market expects a 94.5% probability of a rate cut in September, with the latest possible start of the rate-cutting cycle by the end of October. A weaker U.S. dollar will further enhance liquidity in the Hong Kong market.

Three Key Themes to Watch

With the revision and implementation of the Anti-Unfair Competition Law, the competitive environment for internet companies will become more standardized. The AI industry chain remains a key investment focus, with opportunities in: valuation recovery for leading internet firms; breakthroughs in AI applications; and hard-tech sectors like semiconductors and autonomous driving.

Investors should track companies with better-than-expected interim results, focusing on: niche sectors like trendy toys and gold jewelry; emerging areas such as urban outdoor activities and new-style catering; and online consumption segments like OTA and gaming.

Zhang Yidong's team maintains its "super long bull market" outlook for Hong Kong stocks, noting qualitative changes in market dynamics: Hong Kong's status as an international financial center continues to strengthen; social wealth is increasingly being reallocated to equity assets; high-quality listings create a virtuous cycle; and the investment logic is shifting distinctly from "offshore" to "onshore."

In the short term, August may see a volatile and divergent market. Investors are advised to: focus on interim earnings certainty; seize valuation recovery opportunities in the internet sector; and allocate to high-dividend assets to hedge against volatility.