20240320 Does the sector have entered the tech bull market, and the spring of Hong Kong stocks is coming?

Hong Kong stocks are showing signs of a recovery since February, with the Hang Seng Technology Index rebounding from a low of 2984 points on January 31 to reach a high of 3704 points on March 13, accumulating a rebound of 24%.

In general, a rise of more than 20% from a low can be called a technical bull market, so it enters the technical bull market as a technology index representing technology stocks or growth stocks. From another point of view, as of March 14, a net inflow of capital towards the south has been recorded for 21 consecutive trading days, and Mainland investors' interest in Hong Kong stocks is beginning to revive. The market is more concerned about the future growth potential of technology stocks and whether valuations can actually recover.

Valuation level of Hang Seng Technology Index

(Source: wind)

As of March 14, 2024, according to WIND's data, the technology index has a historical average value of 38.2 times the market earnings, but since the historical data since its inception is not long, individuals consider it meaningless. The current dynamic market earnings ratio of 18.3 times is not high in terms of the valuation level of the technology index, but investors should be aware that undervaluation generally reflects low prices, but also indicates that profitability is uncertain.

The logic behind this round of bounce in Hang Seng Tech Index

The current market's lack of confidence in tech stocks has led to undervaluations of tech stocks at two standard deviation levels since listing. In addition to macroeconomic factors, the weakness of CIT stocks over the past four years has also been the main reason for the slowdown in the growth of the technology sector and the loss of confidence in the market.

New rules for the gaming industry, which were mentioned in the winter to holiday market on December 23, 2023, also hit market confidence again, but as officials changed horses and a series of news supporting the Internet industry, prompted the tech index to take a breather at the beginning of the year.

A number of sectors followed by strong performance from component stocks, including Shijeng Group (9961), Ideal Cars (2015), Kyung Group (9618), and others. Some companies' strong growth momentum, strong product heat and good cost control prompted the market to re-focus on technology stocks.

In addition, stocks that have fallen lower in recent years, such as the US Dollar (3690) and the Beep Mile (9626), are more exaggerated by the extent of their rebound from their lows, after all, their sensitivity to technology indices is higher.

Technology Indices Are Still More Stable Choices

According to the author, the risks of hype for individual technology stocks are still very high, because the performance capacity of technology companies is difficult to master and the current competition in the Mainland technology sector is still quite intense, and investors often do not have to keep track of the market.

For example, recent Baidu results show strong growth, but the share price continues to be under pressure, mainly due to the fact that Alibaba announced a large open source AI model “Common Sense” this year and was officially open to the public. THEREFORE, IT IS VERY DIFFICULT FOR INVESTORS TO ACQUIRE ALPHA FROM INDIVIDUAL INDEX CONSTITUENTS. If investors are interested in the warming momentum of the Mainland tech sector, a better approach is to invest directly in the technology index.

Access from the perspective of futures options

The individual believes that if investors are interested in investing in technology indices, they can consider investing in futures and options in addition to ETFs listed in Hong Kong stocks. AFTER ALL, COMBINING FUTURES AND OPTIONS CAN HAVE THE EFFECT OF HEDGING RISK, WHICH IS MORE APPROPRIATE IN THE CURRENT CONTEXT OF BOTTLENECKS, SUCH AS COVER CALL AND PROTECTIVE PUT STRATEGIES, AND HELP INVESTORS TO FIGHT RISK.

To put it another way, looking at the subscription option with the Technology Index exercise price of 4000 pips to mid-year maturity (expiry 27 June 2024, exercise price 4000 pips, HTI240627C4000000), the historical volatility of the current option is higher than the pullback, which means that the current subscription funds are relatively cheap. And there is a chance that pullback volatility may increase in the future, which is also an opportunity for options investors who do a lot.

If you are interested in the analysis of oscillation rates, please take a look at our Futubull LessonFutures Trading Artifact.

(The source is for illustrative purposes only from the Wind and Futubull infographic and does not constitute any investment advice or guarantee)

(Senior Strategist at Futu SecuritiesTam Chi Lok(a licensee of the Securities and Exchange Commission and its affiliates do not have a financial interest in the proposed issuer of shares mentioned above)