CICC: HK Stocks at a Cyclical Low Rather Than a Historic Bottom
Claire Weston
CICC says the Hang Seng Index has pulled back roughly 18% from its January peak and the Hang Seng Tech Index 33%, yet multi-dimensional indicators point to a cyclical low rather than a historic bottom — sustained recovery still requires a systemic earnings turnaround.
Why has the sell-off lasted nearly nine months?
Three pressures stacked up: weak consumption (monthly retail-sales growth turned negative), AI-cycle mismatch (this AI rally centers on enterprise and hardware, while HK-listed internet leans consumer), and fading liquidity (southbound flows and mutual-fund HK allocations back to pre-"924" levels).
This means → the downturn is not a single-factor story — fundamentals, sector fit, and fund flows weakened at the same time.
Household credit growth turned negative from Q2; the credit impulse — a gauge of consumers' willingness to borrow — has dropped to pre-"924" levels. The spending engine is losing pressure.
Does the current valuation count as a "historic bottom"?
The HSI trades at a forward P/E of 9.7×, the 18.6th percentile over the past decade — but the 2008 trough was 6.9× and 2022 was 7.4×. True historic extremes are still lower.
Hang Seng Tech forward P/E is 15.1×, below 2022's 16.0× but above last year's "reciprocal-tariff" trough of 14.0×.
The equity risk premium (ERP — extra return investors demand over bonds) has risen from 4.7% in late January to 6.6%, yet 2008 hit 10.9% and October 2022 hit 9.7%. In plain terms = the market is getting cheaper, but panic is nowhere near past extremes.
Are any individual names already at extreme levels?
Tencent trades at a forward P/E of 11.2× — its lowest since 2010. Its forward dividend yield of roughly 1.5% is approaching the 10-year government bond yield.
This means → Tencent's dividend return is nearly matching the "risk-free rate" — for a tech mega-cap, that is an extreme-valuation signal.
Hang Seng Tech, new-consumption, and innovative-pharma stocks — last year's biggest winners — have also repriced to roughly pre-"924" levels. The entire rally has been given back.
What could trigger a near-term bounce?
CICC flags three catalysts: falling oil prices → lower US Treasury yields, a rebalancing from extreme underweight positioning by both domestic and foreign funds, and possible marginal policy shifts around the July Politburo meeting.
A sustained recovery, however, needs a bigger catalyst — either a broad consumption upturn recreating a "924 moment" or a breakthrough by leading companies in AI delivering a "DeepSeek moment."
In plain terms = the conditions for a tactical bounce exist, but exiting the bottom requires either "people willing to spend again" or "tech that truly delivers."
What is CICC's base-case target?
Base case: earnings growth of 3%–4%, a modest decline in US Treasury yields, HSI fair value at 26,000–27,000, maintaining a range-bound call.
This means → CICC does not see this as a buy-the-dip moment — it is a "cheap enough to watch, not cheap enough to buy blind" stage.
Upside risk lies in a policy pivot — a stimulus surprise would open room for a valuation re-rating.
Content is for reference only, not financial advice.