Weekly Financial Market Analysis: 29/04/2024 (China’s automaker and Stock Rallies in Hang Seng Index)

Klinsmann Lee

May 5, 2024

2 min read

Weekly Financial Market Analysis: 29/04/2024 (China’s automaker and Stock Rallies in Hang Seng Index)

Writer: Klinsmann Lee

China’s automaker needs to adapt in the face of tough local competition and regulation overseas. [1]

Background:

Although demand for electric and hybrid vehicles continues to increase in China, this has led to price competition among local and overseas automakers.
- Tesla has cut the starting price of Model 3 in China in April 2024.
Overseas countries are also requiring investment in local production by Chinese automakers to reduce the impact on domestic auto industries.
Factors that Chinese consumers consider when purchasing new vehicles include:
- Driver assistance software (auto parking)
- Vehicle’s driving range
- Battery Charging Capability.
As Feng Xingya, president at GAC, concludes “The speed of elimination [for underperforming automakers] will only pick up”.

Klinsmann’s Analysis:

Unsurprisingly, the automaking industry is becoming more competitive within China with higher expectations from customers, price competition among automakers and overcapacity in the Chinese auto industry.
Branding is important – I am surprised that 73% of U.S. consumers recognise at least one Chinese EV brand (survey done by consulting firm AlixPartners).
- BYD has the highest brand recognition among Chinese automakers.
At the same time, I believe the consumer trend will move toward purchasing a hybrid (electric and fuel) power vehicle rather electric-powered vehicle. Consumers continue to factor in vehicle’s driving range as a consideration.
The auto industry is a competitive business – manufacturers need to continue to adapt to new technologies and have a core competitive advantage to be successful in the long run.

Hang Seng Index is up 20% from its recent low in January. [2]

Background:

Compared with previous rallies, the stock market momentum continues to look supported.
The return of global long-only investors and support from China’s National team contribute to the overall momentum.
Fear of Missing Out is also playing a factor – The net purchases of Hong Kong shares from Chinese investors grew materially in April.

Klinsmann’s Analysis:

I was surprised by the stock market momentum in the Hang Seng Index given the economy within Hong Kong.
I think the inflows from Chinese Investors will help sustain this rally, especially given the plan by the China Securities Regulatory Commission to expand access for Chinese investors to invest in the Hong Kong Stock Market and support new Chinese Listings in the city.
- Access will be broadened to include: [3]
  - Real Estate Investment Trusts.
  - Yuan Denominated Stock Listed in Hong Kong.
However, the momentum may decrease given the following factors such as:
- Recessionary global outlook.
- Higher for longer interest rates in the U.S. which reduces the risk and reward in equity investing in global market.
- Underlying economic issues within Hong Kong and China’s Economy.
Overall, I think there are both opportunities and risks present within Hong Kong and China’s Stock Market.

References:

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