CICC: Expect Hang Seng Index to fluctuate between 21,000 and 24,500 in the second quarter, with marginal weakening of liquidity.

Bank of China International released a research report stating that the liquidity conditions of the Hong Kong stock market weakened marginally in the second quarter. Recently, US bond yields and the US dollar rebounded after hitting bottom, and there has been a slight return of funds to emerging markets such as India. The A/H share premium has shown signs of rebounding, while the inflow of southbound funds has slowed down. Bank of China International's leading liquidity indicator also suggests a marginal weakening of liquidity in the Hong Kong stock market. The report points out that after the impact of tariffs, the April meeting of the Political Bureau will be an important window for observing incremental policies. In the medium to long term, the sustainability and upside potential of the market depends on incremental policies, reform efforts, economic fundamentals, and the progress of expected improvements. The Federal Reserve may have a 50-75 basis point rate cut space within the year, but the subsequent rate cut path remains highly uncertain. Considering the unclear trend of the US economy, the Fed is facing a dilemma due to stagflation risks, and more observation is needed on the impact of tariffs. The earliest restart of rate cuts may be in the third quarter. The bank expects the Hong Kong stock market to show range-bound movements in the second quarter, with the Hang Seng Index fluctuating between 21000-24500 points, the Mainland Enterprises Index between 7500-8900 points, and the Technology Index between 4900-5900 points. The bank recommends range trading in the second quarter, adopting a balanced "dumbbell" type of allocation between offense and defense. Maintaining a balance between high dividend stocks and growth stocks, focusing on technology leaders and domestic demand stocks after a pullback, such as essential consumption, high-end manufacturing, and precious metal sectors. Avoiding foreign demand stocks heavily impacted by tariffs and geopolitical issues, such as export, port, and shipping stocks.