Review and Outlook (May 30, 2022)

Fortnight in Review

In the uneventful two weeks, S&P 500 Index registered a 3.4% rebound after a dip initially. USD Index declined to 101.48 from 104.48 (down 2.9%); RMB appreciated 2.8% against USD to 6.66 RMB/USD.

Hang Seng Index was up 6.0% in the past two weeks, accumulating a 9.8% decline year-to-day, compared to a 12.8% loss of S&P 500 Index or 22.5% drop of NASDAQ Composite Index.


COVID Update: Without a complete lockdown, Beijing announced successful “social clearing” of COVID-19 in the city, which improved market sentiments. Shanghai is stably progressing to “back-to-life” and “back-to-work”, and should return to normal life by mid-June if nothing else. The COVID-zero policy should continue, but we don’t see another lockdown of a major city. The market should be relieved by this prospective.


Policy Trend: A series of stimulating policies have been announced recently. Shanghai, who suffered heavily from the lockdown, published “Recovery and Stimulation Action Plan” which contains 8 chapters and 50 relief articles. Shenzhen announced subsidy plans for purchasing new energy cars, electronics and appliance. It is notable that recently policies against COVID are mostly consumption related; and infrastructure projects are expedited. Much-anticipated real estate related policies are likely disappointing. In fact, a few radical real estate policies were withdrawn overnight after publication (such as in Nanjing).


Hong Kong Stocks: As we insisted in the past few reports, the valuation of Hong Kong stocks is historically low and the downside is limited. In the backdrop of US stock rebound and easing of domestic policy, we recommend to accumulate positions in advance. In our view, the Technology, Internet, and Medicine industries should lead the market as they had been plummeted most and have higher beta value.