Should Hong Kong stocks "hold shares for the holiday"?

Source: Zhang Yusheng, Liu Fang from Everbright Securities

With the holiday approaching, the Hong Kong stock market will enter a 3-day trading suspension period, while mainland traders will resume normal trading on October 9th.

With the Mid-Autumn Festival and the National Day holiday approaching, mainland investors trading Hong Kong stocks through the Stock Connect program will face a 10-day trading suspension. The current trading suspension for Stock Connect will start on September 29th and last until the market opens on October 9th.

For overseas traders and local traders in Hong Kong, the stock market will be closed on September 30th and resume normal trading on October 3rd. As for the U.S. stock market, it will operate as usual without any special arrangements.

The holiday pattern of the Hong Kong stock market

Historically, the Hong Kong stock market tends to perform poorly before the National Day holiday. Looking back at history, the Hong Kong stock market has often shown a downward trend before the National Day holiday (from September 15th to September 30th between 2010 and 2022).

This may be due to the increased uncertainty faced by mainland investors during the holiday period, as they are unable to trade for an extended period of time. Some investors choose to close their positions before the holiday. However, the Hong Kong stock market tends to perform better after the market opens on October 3rd, although the upward momentum slows down after October 7th.

In terms of industries, the media sector performs well before the National Day holiday, while the automotive, financial, and energy sectors lead the market after the holiday. Looking at different industries, most sectors experienced a decline before the National Day holiday (from September 15th to September 30th since 2010), except for the media sector, which stood out with impressive performance. After the holiday, the automotive, financial, and energy sectors take the lead, while the telecommunications, utilities, and household goods sectors show average performance.

The performance of the U.S. stock market during holidays is positively correlated with the first-day performance of the Hong Kong stock market after the National Day holiday, making the holiday performance of the U.S. stock market worth paying attention to. Historically, during the trading suspension period of the Hong Kong stock market for the National Day holiday, there has been a clear positive correlation between the performance of the U.S. stock market during this period and the first-day performance of the Hong Kong stock market after the holiday. Additionally, there is a high positive correlation between the overall performance of the Hong Kong stock market and the U.S. stock market during the holiday period.

Investment Strategy Outlook

With the current intensive release of macro policies, the reduction of reserve requirements as one of the policy tools is beneficial for consolidating the momentum of economic recovery, enhancing investor confidence, and boosting market sentiment. After the positive tone set at the July Politburo meeting, relevant departments have been working together and implementing multiple measures to effectively exert the combined force of policies. These measures include halving the stamp duty and timely adjusting and optimizing the real estate market. They demonstrate the determination of current policies to stabilize economic growth and activate the capital market. The positive stance of the policies is conducive to further stabilizing investor expectations and boosting market sentiment. The positive signal of the unexpected reserve requirement ratio cut is expected to boost market sentiment. Historically, although the time from policy bottom to actual economic improvement is not stable, the current active capital market policies and the unexpected reserve requirement ratio cut may still effectively enhance market sentiment. However, the upward trend in the Hong Kong stock market still requires support from corporate earnings, so the systematic upward trend of the index still needs to wait for the continuous improvement of economic data to be validated.

In terms of allocation, it is recommended to focus on: 1) Technology stocks such as semiconductors, communications, and electronics that coexist with the industrial prosperity and AI theme. 2) The Political Bureau meeting emphasized the need to "effectively improve the core competitiveness of state-owned enterprises." It is recommended to continue to focus on the "China Special Estimate" theme, including industries such as construction and decoration, petroleum and petrochemicals, banking, and coal.