Tencent's repurchase scale attracts attention, adding fuel to the bull market in Hong Kong stocks?

According to the Zhitong Finance and Economics APP, as one of the important heavyweight stocks in the Hong Kong stock market, Tencent (00700) has seen a rapid rebound in its stock price. Investors will closely watch the stock buyback plan in the company's latest earnings report to be released on Tuesday. Against the backdrop of relatively weak corporate profits and the uncertain expectations of a Fed rate cut in the macro environment, China's largest technology company by market value is increasing its buyback efforts to enhance shareholder returns. Tencent, one of the most influential heavyweight stocks in the Hong Kong stock market, is expected to boost bullish sentiment in the market with its massive stock buyback.

With the impact of multiple factors such as policy support, economic stabilization, and international capital inflows into Hong Kong stocks after the depreciation of the Japanese yen, the Hang Seng Index, the benchmark index of Hong Kong stocks, has achieved a maximum increase of 15.62% in 10 trading days since April 19, and has rebounded by over 20% since the previous cyclical low on January 22. All these indicate that the Hong Kong stock market has entered a "technical" bull market.

In terms of stock prices, the stock price of Tencent, known as the "King of Hong Kong Stocks," has risen by about 44% from the cyclical low in January. The company plans to double its stock buyback size by 2024, reaching over HKD 100 billion (approximately USD 12.8 billion). Analytical data shows that Tencent has repurchased about a quarter of its shares so far. Prior to the financial report release on Tuesday, Tencent's stock price in the Hong Kong stock market rose by 1.8%.

In the first quarter of this year, Tencent once again became the "King of Hong Kong Stock Buybacks," with a total repurchase amount of HKD 14.83 billion, more than three times the size of Tencent's stock buybacks in the same period last year, which was HKD 4.63 billion. In addition, some market views believe that Tencent's high buyback amount in 2024 is expected to offset the reduction in holdings by major shareholder Prosus, and the impact of Prosus selling Tencent shares on the stock price may continue to weaken.

In terms of performance expectations, according to analysts' expectations compiled by Bloomberg Intelligence, the leading player in China's technology industry is expected to continue expanding its performance, but may record the slowest revenue growth rate in over a year in the first quarter of this year. Forecast data shows that Tencent is expected to achieve revenue of RMB 158.583 billion in the first quarter, a year-on-year increase of 5.73%; analysts generally expect earnings per share for the same period to be RMB 3.69, an increase of 39.66% year-on-year.

Tencent's buyback may further stimulate the "technical bull" market in Hong Kong stocksAny changes in the company's commitment to increase shareholder returns will have a significant impact on the entire Hong Kong stock market's "technical bull market" trend. Another important technology company in the Hong Kong stock market, Alibaba, will also announce quarterly results on Tuesday, while the two tech giants JD.com and Baidu will also release their results later this week. Data shows that the combined market value weight of just these four companies accounts for more than a quarter of the MSCI China Index.

Institutional forecast data shows that another important weighted stock in the Hong Kong stock market, Alibaba, is expected to achieve revenue of RMB 219.832 billion in the latest quarter, a year-on-year increase of 5.58%; earnings per share of RMB 5.41, indicating a possible year-on-year decrease of 39.88%. Since April, with the increasing confidence of investors in the Hong Kong stock market, Alibaba's stock price has rebounded by nearly 10% in two months. Therefore, the financial reports of internet tech giants including Tencent and Alibaba, as well as the information revealed by these giants in stock repurchases, may become key influencing factors in the subsequent trend of the Hong Kong stock market.

Analyst Ivan Su from Morningstar Inc. stated, "I expect the company to at least maintain the current absolute daily stock repurchase amount. However, due to the recent rapid rise in stock prices, this may lead to a reduction in the scale of repurchased stocks, which may be seen as a slight negative impact by value investors."

Goldman Sachs and Bank of America recently stated that with the continuous depreciation of the Japanese yen and the attractive valuation of Hong Kong A shares, global funds may start to reverse the strategy of "buying Japanese stocks, selling Hong Kong stocks" and flow back into the Hong Kong A share market, mainly because Hong Kong A shares have valuation advantages and low positions, and can also serve as a hedging tool.

Goldman Sachs stated that due to the increasing valuation gap between the Japanese stock market and Hong Kong A shares, as well as the depreciation of the Japanese yen leading to shrinking Japanese assets, global fund management companies may be starting to unwind their popular "long Japanese stocks, short Hong Kong stocks trades" and instead turn to long Hong Kong A shares. A recent trading report released by Goldman Sachs showed that many macro-focused hedge funds have started selling Japanese stocks, and some long-only funds may also shift towards Hong Kong as valuations in Japan and the United States appear high.

Furthermore, in its latest report, Goldman Sachs wrote that the continuous rise of the Hang Seng China Enterprises Index for several months may soon be boosted by structurally related Korean notes. In a report released by Goldman Sachs' trading department on Sunday, it was stated that as long as there is an increase of about 3%, the Hang Seng China Enterprises Index will reach the key level of 7000 points, with most of the barriers of elimination of Korean structured products concentrated at this level. Reaching these levels may force traders to increase positions to hedge against more upside risksBank of America recently stated that as the Federal Reserve may keep benchmark interest rates high for a longer period of time, funds continue to withdraw or rebalance from crowded trades such as the Japanese and American stock markets, thereby re-entering the Chinese market.

The depreciation trend of the Japanese Yen, as well as the high valuation of the Japanese stock market, are also important factors prompting international capital to recently withdraw from the Japanese stock market. In the past two weeks, the depreciation pace of the Japanese Yen has accelerated, with the USD/JPY exchange rate once soaring to the 160 Yen mark, indicating a rapid depreciation of the Yen. This has caused the value of assets priced in Yen held by international funds in Japan to continuously shrink, leading them to massively withdraw funds from the already high-valued Japanese stock market and instead invest in the much cheaper Hong Kong and A-share markets. At least from certain valuation indicators, the Hong Kong stock market is much cheaper than the Japanese stock market. The Hang Seng Index has a forward P/E ratio of 8.5 times, while the Nikkei 225 Index has a forward P/E ratio of over 21 times.

Another major bank, UBS Group, has also recently joined the bullish camp on the Chinese stock market, upgrading its recommendation rating for the entire Hong Kong stock market from "Neutral" to "Buy", and upgrading the MSCI China Index rating for overseas investors, which includes core Chinese stock assets such as Alibaba, Tencent, and Kweichow Moutai, to "Buy". This MSCI index tracks 704 Chinese companies with a total market value of $1.8 trillion.

The Hang Seng Tech Index surged before the performance announcements of internet tech giants

The Hang Seng Tech Index, which covers many Chinese internet tech giants such as Alibaba, Tencent, and Baidu, surged significantly before the performance announcements of Tencent and Alibaba. During Tuesday's trading session, it rose by more than 2.3% at one point, marking a four-day consecutive increase. The main logic behind this surge is the market's optimistic expectations for Tencent's stock buyback scale, which has fueled the bullish sentiment, as well as analysts' relatively optimistic outlook on the overall profit data of internet tech giants.

Tencent Music Entertainment Group announced better-than-expected first-quarter results later on Monday, causing its stock price to surge by over 12% in the Hong Kong stock market on Tuesday, reaching a historical high. The optimistic performance of Tencent Music has undoubtedly boosted the bullish sentiment in the Hong Kong stock market, indicating that the strong earnings of large Chinese internet tech companies in the coming weeks will follow suit.

Bloomberg Intelligence analyst Marvin Chen stated: "As the two stocks with the largest market capitalization weight in the MSCI China Index and the Hang Seng Index, the performance of Tencent and Alibaba will boost market confidence in the major Hong Kong indices." "In this lackluster earnings season so far, the performance of internet tech giants is expected to be one of the highlights”