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09:00 AM, Friday, Jun 24, 2022
Hang Seng Index Rose 265 Points on Thursday

Although Fed Chairman Powell said the Fed is strongly committed on inflation, Hang Seng index still opened up 149 points; and then moved upward along with A-shares amid choppy market. The index closed up 265 points at 21,273. H-share index rose 128 points to 7,463, and the Tech index was up 103 points to 4,655. Market turnover amounted at HK$120.5bn. The State Council mulls to extend vehicle purchase tax cut, driving up auto stocks, with Geely (0175) and BYD (1211) up 7.4% and 4.5%. Alibaba (9988) is reported to minimize cooperation with Ant Financials, which was reported to submit the application of setting up a financial holding company this month. Alibaba was up 6.4%.

US Stock Market Rose on Thursday

US and Europe PMI in June continued to decline, and is much lower than expectation. There are increasing concern on recession risk. US stock market fluctuated on Thursday. Fund flow into defensive sector such as utilities and health care sector. Besides, US treasury yield declined, also provide a boost to real estates and tech sectors, helped to offset the economy sensitive sector such as material and oil. US stock index finally closed higher on Thursday, the three major US stock index rose 0.6-1.6% respectively. Of which, the Nasdaq index rose the most. Besides, with increasing concern on recession risk, fund flow into US treasury, 10 Year yield fell 7 basis points to 3.09%. Besides, fund flow away from commodity sector, oil price fell 1.8% to US$104.3 per barrel.

Recession risk triggered pressure on Commodity stock; CNOOC buy during weakness

Although US treasury yield decline, but fund still flow into US dollar given global economy recession concern. However, since investors recently turned more positive on China stocks, it might provide some support HK stock. Hong Kong stock is likely to stay range trading ahead of the half year end, while market turnover might maintain at relatively low level. Hong Kong Stock Connect net inflow rose to HK$1.87bn on Thursday, of which, Li Auto(2015) and Molybdenum (3993) recorded most net inflow, while China Mobile (0941) and Tencent (0700) suffered from most net sell off. In fact, thanks to lots of supportive measures, China auto sales is expected to increase 15% in Jun. Auto sector is expected to be investors focus in the near term. On the other hand, global recession concern triggered selling pressure on commodity and related stocks, short term trend remains weak. Relatively speaking, oil price is supported by supply constraint, CNOOC (0883) support at 100 Day SMA (HK$9.53), could buy during weakness.

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Stock Recommendation
During the regular meeting of the State Council, the Chinese government is committed to roll out stimulus to boost consumption, and unleash consumption power of automobiles and new energy vehicles (NEV). Related measures stipulate that vehicle purchase tax should only apply on road construction, and the government has mulled to extend vehicle purchase tax cut extension. These are expected to boost vehicle consumption of Rmb200bn. We expect vehicle supportive measures to favor carmakers and supply chain shares such as Minth Group. Minth Group targets revenue growth at 30% YoY, and battery box revenue to surge 7x YoY. We thus suggest to buy with a target price at HK$26 and a stop-loss price at HK$18.

Source: KGI Research

Chua Tit Hong is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to: He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.

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