Stabilize financial market confidence and undertake the return of Chinese concept stocks

Since the beginning of this year, the capital market has been turbulent due to multiple factors such as the drastic changes in the international environment and the "water withdrawal" of global central banks.

Among the many markets, however, the mainland and Hong Kong stock markets performed particularly poorly, only outperforming the Russian market, which has been heavily sanctioned by the West.

In addition to the above-mentioned general environmental factors, the weakness of the mainland and Hong Kong stock markets has its own problems.

First, since the beginning of last year, the central government has introduced a number of regulatory policies, which have hit a number of major technology and real estate companies.

In addition, foreign investors are raising the risk assessment of Chinese companies due to concerns about Chinese companies being drawn into the Sino-U.S. wrestling, causing their valuations to slide.

In addition, the slowdown of the mainland's economy this year, coupled with the repeated epidemics that have led to multi-city blockades, have all caused the Chinese stock market to fall into a slump.

Compared with the mainland, the situation in the Hong Kong stock market is more serious. The Hang Seng Index has fallen by nearly 30% since its high last year, while the Hang Seng Technology Index has fallen by nearly two-thirds.

The return of Chinese concept stocks is worrying

The stock market's performance was not only unsatisfactory, but also began to affect confidence in the mainland economy and private enterprises.

Although there is no obvious investigation, the collective rapid decline and valuation reduction of Chinese concept stocks have clearly "underperformed" other regions, indicating that the market's recognition and confidence in Chinese concept stocks have fallen to new lows in recent years.

Even though the valuations of a large number of Chinese companies are approaching historic lows, some Wall Street firms have publicly called Chinese concept stocks "uninvestable", arguing that the risks are too great.

Among the Chinese concept stocks listed on the US stock market in 2021, nearly 50 stocks fell by more than 80% during the year.

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We have also pointed out before that the loss of investors' confidence in Chinese enterprises will cause problems for private enterprises in the Mainland to raise funds and operate in the long run. As a result, it will greatly hinder China's economic and innovative development.

Apart from that, it is also a serious problem for Hong Kong.

As we all know, Chinese companies are facing many challenges due to listing in the United States, and a large number of them plan to return to Hong Kong for dual listing or secondary listing.

The wave of China’s return to Hong Kong listing was originally an opportunity for Hong Kong, but if international investors believe that the stocks of these companies cannot bring profits, it will only make the fundraising process more and more difficult, and eventually lead to a sell-off, causing the new shares to be listed soon. Break" (below the issue price).

If the stock prices listed on the Hong Kong stock market continue to break out, some of them may even be included in major local indices, which will eventually make the Hong Kong stock market even less favored by capital, creating a vicious circle.

Just like Zhihu, which returned to Hong Kong from the United States for a dual listing, this Friday (22nd) saw a 23.5% "break" on the first day of its listing.

If more Chinese companies return to Hong Kong for listing in the future and then break, the situation will be quite worrying.

Support the economy needs to be stronger

The biggest problem of Zhongjing Company comes from fundamentals such as economic downturn and profit stall.

Although the mainland has actively expressed its support for economic development recently, the policy strength seems to be insufficient to reverse the market's pessimism about China's economy, and the market is still repeatedly searching for the bottom.

The current pessimism can be changed only if the mainland continues to firmly launch stronger policies to support the economy.

Due to the impact of the external environment, there is downward pressure on China's economic development this year, and the market expects that the central government will introduce relatively loose policies.

The fundamental problems of China Conception Company lie in the operating conditions of the mainland and the environment in which China and the United States are wrestling with each other. These cannot be solved by Hong Kong alone, but Hong Kong is not helpless either.

In the face of the downturn in the stock market, Hong Kong can consider introducing some expedient measures. Although the symptoms are not cured, they can stabilize fluctuations and bring confidence back to the market.

For example, consider using government funds to enter the market to support the market. For example, among the Exchange Fund, nearly 742.5 billion is invested in stocks, but only 183.2 billion is invested in local investment. As long as the proportion of local investment is increased, it is easy to enter the market to support confidence and slow down Fear in the market.

Or, temporarily strengthen the supervision of whether companies that have not achieved profitability will have the problem of overvaluation, reduce the problem of immediate breakouts after listing, or temporarily restrict Hang Seng Index companies from including such companies into major indexes to avoid stimulating index volatility.

In the end, the Hong Kong government's own power is ultimately limited, so it should communicate more with the mainland policy authorities to reflect problems and coordinate with each other, so that the return of Chinese concept stocks can be smoother.

In the face of the return of Chinese stocks, the Hong Kong government is not ready to seize the opportunity of the return of Chinese stocks to consolidate its status as a financial center