On October 8, renowned economist and Chief Investment Officer of Lianhua Asset Management Hong Hao shared his latest views in a dialogue with Bloomberg, covering topics such as future market direction, whether further economic stimulus policies will be introduced, and structural opportunities in the Chinese market.

On the economic stimulus policy front, Hong Hao pointed out that when China introduces policies, it typically rolls out a complete package. The recent mortgage interest subsidy is a prelude to the broader policy package, and he believes that more details of the full package should be unveiled in the coming weeks.

One of the quickest measures to take effect is restarting consumption stimulus. He also suggested that the scope of loan interest subsidies could be expanded to more industries beyond just mortgages, and that traditional measures such as reserve requirement ratio cuts and interest rate cuts could also be employed.

Regarding the recent poor performance of the Hong Kong stock market, Hong Hao attributes it mainly to pressure from two sides: on one hand, China's economic fundamentals have not yet improved; on the other hand, rising U.S. financing costs have pushed up local financing costs in Hong Kong as well. With market sentiment currently depressed, selling appears to be accelerating. This is largely because U.S. Treasury yields have continued to surge.

Therefore, Hong Hao believes that if U.S. Treasury yields are one of the main triggers for this round of decline, then an easing of selling pressure on U.S. Treasuries could serve as a catalyst for a market rebound. He noted that despite extremely low market sentiment at present, we should not follow everyone else into pessimism.

Overall, with the Shanghai Composite Index around 3,800 points and the Hang Seng Tech Index at approximately 4,200 points, both markets are showing a very attractive risk-reward ratio 鈥?it is just a matter of waiting for a catalyst to drive a market recovery and rebound.

Mortgage Interest Subsidy Just a Prelude Signal, More Details to Land in Coming Weeks

Moderator: More and more economists and analysts are now saying the economy needs more stimulus policies. Is there a possibility of another round of policy measures to boost the economy?

Hong Hao: Generally speaking, policy announcements tend to come around this time. Before the holiday, we already saw the mortgage interest subsidy policy, which to some extent eased the pressure on domestic homebuyers and also relaxed the conditions for homebuyers applying for mortgages from banks. I believe that when China introduces policies, it typically rolls out a complete package. So in my view, this mortgage interest subsidy is merely a prelude signal for the broader policy package to follow. In the coming weeks, we should see more details of the full package being unveiled.

Restarting Consumption Stimulus Is the Fastest-Acting Measure

Moderator: What else do you think this policy package might include?

Hong Hao: I think the measure that can take effect quickly is restarting consumption stimulus. Last year's distribution of consumption vouchers helped boost retail sales. Entering this year, retail sales data in many first-tier cities turned negative, partly due to the high base effect from last year. So considering the current consumption situation and holiday spending during National Day, distributing consumption vouchers would be an immediate measure. In addition, the scope of loan interest subsidies could be expanded to more industries beyond just the mortgage sector. For example, if technology companies want to apply for bank loans, interest subsidies could make it easier for them to increase R&D investment in the future. I think there are actually many measures that can be taken at this stage, including traditional RRR cuts and interest rate cuts, which would also help.

Elevated U.S. Treasury Yields Put Hong Kong Stock Market Under Pressure from Two Sides

Moderator: Let's talk about the stock market. Looking at the Hong Kong market first, why do you think it has performed so poorly?

Hong Hao: Mainly because U.S. Treasury yields remain elevated. The Hong Kong market is under pressure from two sides: on one hand, China's economic fundamentals have not yet improved; at the same time, rising U.S. financing costs have pushed up local financing costs in Hong Kong, putting pressure on the market. In addition, if you look at China's policies over the past few months, they have actually tightened capital outflows 鈥?funds flowing abroad. A portion of the capital in the Hong Kong stock market comes from the mainland. For example, regulations have been introduced to govern mainland accounts trading through Hong Kong brokers. By my estimate, more than one-third of capital inflows into the Hong Kong secondary market comes from the mainland. So over the past few months, this has affected the Hong Kong market. Combined with the lack of mainland capital inflows during the holiday period, Hong Kong stocks have lacked capital support.

Some AI Concept Stocks Still at the Storytelling Stage

Moderator: Should we pay more attention to the mainland market, especially the ChiNext Index and the STAR 50, which have also been quite volatile in recent weeks?

Hong Hao: Yes. The ChiNext Index and STAR 50 have largely given back their gains for the year. The main reason is that some domestic AI concept stocks are still at the storytelling stage, unable to deliver corresponding earnings, and some don't even have profits. But these stories persist because this is a national-level competition with the United States, so these AI companies will receive strong policy support and funding support. At the same time, after the intense speculation in June and July, investors are eager to see these storytelling companies deliver results. This also explains why U.S. and South Korean semiconductor companies rebounded after their July lows, while some domestic names remain at low levels after their pullbacks.

Z.AI and MiniMax Plunge Drag Down Hang Seng Tech Index

Moderator: The Hang Seng Tech Index is undergoing a large-scale adjustment, with constituent stocks expanding from 30 to 50. How do you think this will change market sentiment toward this benchmark index?

Hong Hao: Hong Kong's index construction often lags behind market trends. For example, when Z.AI and MiniMax were included in the Hang Seng Tech Index, it was precisely at the peak of their stock prices. Afterward, MiniMax plunged 80% to 90%, and I recall Z.AI also fell more than 70%. In fact, it was the weight of these two stocks in the index that dragged the index down. Also, if you look at the constituents of the Hang Seng Tech Index, it includes some electric vehicle companies and some internet companies. These companies belong to the software services sector and have performed very poorly this year.

Easing of U.S. Treasury Selling Pressure Could Become a Catalyst for Market Rebound

Moderator: If the current situation sounds unfavorable everywhere, where should we look for localized opportunities?

Hong Hao: You're right. Current market sentiment is extremely depressed, so selling appears to be accelerating. This is largely because U.S. Treasury yields have continued to surge. If U.S. Treasury yields are one of the main triggers for this round of decline, then an easing of selling pressure on U.S. Treasuries could become a catalyst for a market rebound. In addition, many people are still waiting for more details of China's full stimulus package. If you look back at China's fiscal spending this year, in the first half, despite the challenging overall environment, the growth rate of fiscal spending actually slowed. As of June this year, fiscal spending accounted for only slightly more than 30% of the annual budget; in a normal year, this proportion should have exceeded 40%.

Europe Already in a Predicament, Hong Kong Financial Sector Under Pressure

Moderator: Looking at the current situation in Europe, I think the Hong Kong market is also affected by the European crisis erupting in places like France. I'd like to ask, how should we view financial stocks now?

Hong Hao: I think Europe is already in a predicament 鈥?both the economy and the market are beyond recovery. This is also one of the reasons they resort to trade wars, hoping to resolve their current situation through trade friction. Turning to Hong Kong's financial sector, many stocks such as HSBC and Standard Chartered have long been major investment targets for many Hong Kong investors. A very popular investment approach in Hong Kong is: when you have spare cash, buy HSBC and get a 5% to 6% dividend yield, which is more cost-effective than putting money in a savings account. But now that U.S. Treasury yields have also reached 5%, many retail investors will think twice before buying HSBC. It is precisely because of this that when U.S. Treasury yields surge, we see HSBC's stock price under pressure. And over the past few weeks, we have also seen a large influx of retail funds into the U.S. Treasury market.

A-Share and H-Share Risk-Reward Ratio Improving, Waiting for a Catalyst to Drive a Rebound

Moderator: Specifically, what opportunities are there in the Chinese market right now?

Hong Hao: I think current market sentiment is extremely depressed, but we should not follow everyone else into pessimism. For example, the biotech sector has delivered decent returns this year; there are also AI equipment-related stocks, such as CPO concept stocks listed on the mainland and in Hong Kong, which have good return prospects. Overall, with the Shanghai Composite Index around 3,800 points and the Hang Seng Tech Index at approximately 4,200 points, in my view, both markets are showing a very attractive risk-reward ratio 鈥?it is just that we are all waiting for a catalyst to drive a market recovery and rebound.