DeepSeek-triggered Hong Kong Stock Rally... Attention on Possible Spread to Mainland China

Amid the ongoing rally in the Hong Kong stock market driven by recent positive developments in deep tech in China, analysts have pointed out the need to pay attention to the possibility of this momentum spreading to economically sensitive stocks and the mainland stock market (China Shanghai Composite Index·SHCOMP), where the proportion of such stocks is relatively high. This is because risks that have acted as discount factors for the stock market could be significantly and meaningfully resolved as the Chinese government is expected to pour out stimulus measures focused on expanding domestic demand.

On the 19th, Baek Gwan-yeol, an analyst at LS Securities, stated in his weekly report titled "China Stock Market: Focus on the Possibility of Spread Rather Than Pullback," that "the biggest reason for advocating the spread to the mainland stock market rather than a pullback or profit-taking in the Chinese stock market is the additional stimulus measures to be strengthened by the Chinese government."

First, Analyst Baek explained, "The recent rally in the Hong Kong stock market is not only influenced by deep tech but also a healthy rise based on solid earnings," and added, "I still maintain a preference for the Hong Kong stock market, which has a better earnings trajectory compared to the mainland." While noting the possibility that the Hong Kong stock market might be perceived as overheated in the short term, he emphasized, "We should pay attention to the possibility of the rally spreading to economically sensitive stocks and the mainland stock market, where the proportion of such stocks is high, rather than profit-taking."

He further mentioned, "This year, local governments in China have selected expanding domestic demand as their top priority policy, and at this year's National People's Congress and Chinese People's Political Consultative Conference, a foundation for expanding domestic demand will be established," citing expectations for consumption recovery due to stimulus measures. He referred to financial industry forecasts that the first batch of 81 billion yuan in the 1st phase of the replacement subsidy for old appliances will be fully used up by February, and local reports suggesting that this subsidy could expand to between 324 billion and 648 billion yuan this year, stating, "This year, we can expect Chinese consumption to improve compared to the previous year."

Accordingly, Analyst Baek observed that risks that have acted as discount factors in the Chinese stock market, such as real estate and consumption downturns, prolonged deflation, and sluggish corporate earnings, could be meaningfully resolved compared to the past. He noted, "The growth rate of narrow money supply (M1), which is both a corporate sentiment indicator and a leading economic indicator, has turned positive," and judged that "under the Common Prosperity policy, the likelihood of renewed regulations on real estate and platform/internet companies is limited, indicating that there is sufficient room for multiple re-rating in the Chinese stock market."