Recently, the Hong Kong stock market has experienced a robust surge, with certain stock prices increasing by 30% to 40% after a series of consecutive rallies, nearing historical highs. This phenomenon has garnered significant attention, particularly from foreign investors. Notably, this upward movement is not solely attributed to optimistic market sentiment but is also driven by multiple factors, including adjustments in domestic economic policies, increased foreign investment, and valuation corrections following technical pullbacks.

The Influx of Foreign Capital: The Driving Force Behind the Rebound in Hong Kong Stocks

The role of foreign investment in the Hong Kong stock market is pivotal, particularly for large international investment institutions such as JPMorgan, which have recently been notably active. For instance, JPMorgan has significantly increased its holdings in BYD and Hong Kong Exchanges and Clearing, reflecting its confidence in the Hong Kong stock market.Furthermore, JPMorgan has augmented its positions in several other blue-chip stocks, such as Tsingtao Brewery and Jiumaojiu, thereby indicating its positive outlook on the medium- to long-term investment value of Hong Kong stocks.

This influx of foreign investment is underpinned by optimistic expectations in the global capital markets regarding China's economic recovery. As the Chinese government has introduced a series of economic stimulus measures—including interest rate cuts, the release of bank funds, and liquidity support for the stock market, particularly with the optimization of policies in the real estate and technology sectors—market sentiment has been notably buoyed. These measures not only assist in smoothing the deleveraging process but also support the repair of balance sheets.

Moreover, expectations of interest rate cuts by the Federal Reserve have also stimulated foreign capital inflows to some extent. Against the backdrop of profit-taking in relatively high-valued European, American, and Japanese stock markets, more foreign investors have begun to flow into the Hong Kong stock market in search of better investment opportunities.

Furthermore, data indicate that southbound funds have experienced a net inflow into the Hong Kong stock market for 12 consecutive months, particularly favoring the internet and technology sectors. Tencent Holdings has emerged as the largest beneficiary of these southbound funds, with significant buying observed in technology stocks such as Meituan and Alibaba.

Underlying Concerns Amidst the Market Rebound: Challenges of Overvaluation and Policy Guidance

However, the rapid rise in the market has also triggered a cautious attitude among some institutions. For example, Raymond Ma, Chief Investment Officer for Hong Kong and Mainland China at Invesco, emphasizes the importance of fundamentals, suggesting that market sentiment may temporarily overreact, but ultimately, investors will return to fundamental analysis. He further notes that due to this price surge, some stocks have become overvalued. Therefore, whether the fundamentals in the next 12 months will remain as robust as they were before their peak will be a critical factor in his decision-making regarding potential position reductions.

In addition, JPMorgan Asset Management shares a similarly cautious outlook, asserting that the ability to introduce additional policy measures remains key, with the market awaiting new policy guidance to be solidified. Tai Hui, Chief Market Strategist for JPMorgan in the Asia Pacific region, stated that more policy steps are necessary to boost economic activity and investor confidence.

Despite these cautious voices, many institutions maintain an optimistic outlook on market prospects, considering that the valuation of Chinese stocks remains relatively low. For instance, Goldman Sachs continues to believe that there is further upside potential in the Chinese stock market, forecasting a possible increase of 15% to 20% in the near future. Furthermore, Matthew Quaife, Head of Global Multi-Asset Investment at Fidelity International, indicated that the market rebound is not yet over, with substantial funds still requiring rebalancing, especially from global investors. He believes that, from a technical perspective, valuations remain below the average, suggesting that the rebound may persist.

Moreover, the risk of market corrections is also gradually becoming apparent. For instance, the Hang Seng Index experienced a notable adjustment in early October, indicating that the market may have reached a temporary peak in the short term. Institutions generally believe that the medium- to long-term performance of the Hong Kong stock market remains attractive, although short-term volatility is inevitable.

With respect to individual stocks, some have shown particularly notable performance, such as Rongxin China, Agile Group, and Shimao Group, which have all surged significantly, alongside Chinese brokerage stocks. This suggests that not only has there been a substantial increase at the index level, but significant gains are also evident at the individual stock level.