CITIC SEC: Short-selling and pair trading coexist in Hong Kong stocks, while US stocks regain momentum in AI trading.

CITIC SEC released a research report stating that this week, the President of the People's Bank of China, Pan Gongsheng, stated that the proportion of foreign reserves in Hong Kong's assets will continue to increase, driving a significant rebound in the Hong Kong stock market for the second consecutive week. Currently, the proportion of open short sales in the Hong Kong stock market, although slightly decreased from its mid-June high to 2.43%, is still close to three times the historical average standard deviation level, and as internal and external disruptive factors gradually ease, it is expected that there will be a significant downside potential in the future. However, there are clear signs of pair trading in the recent Hong Kong stock market, and in the short term, it is recommended to focus on directions with high fundamental certainty and event catalysis, including: innovative pharmaceuticals, aviation, Siasun Robot & Automation, and strong industrial metal attributes. The main points of CITIC SEC are as follows: - The proportion of foreign reserves in Hong Kong's assets will continue to increase. According to the official website of the People's Bank of China, on July 7, the People's Bank of China, the Hong Kong Monetary Authority, and the Securities and Futures Commission of Hong Kong jointly announced 11 new measures to further deepen cooperation between the financial markets of Hong Kong and the mainland, aiming to improve the development of fixed income and currency markets in Hong Kong and support the arrangement of Hong Kong as an offshore RMB hub. In his speech, Pan Gongsheng, the President of the People's Bank of China, stated that the People's Bank of China will work with the local government and financial regulatory agencies in Hong Kong to build, consolidate, and develop the financial center of Hong Kong. In his speech, he mentioned that the proportion of foreign exchange reserves in the country will continue to increase in Hong Kong, injecting more momentum into the development of the Hong Kong capital market. This statement was first mentioned by President Pan Gongsheng at the 18th ASIA FINANCIAL forum in 2025, and thereafter, the Hong Kong stock market saw its second round of increase since September 24, with the Hang Seng Index rising by nearly 30% in 45 trading days. According to the annual report of the State Administration of Foreign Exchange, the currency structure of China's foreign exchange reserves exhibits a higher level of diversification and decentralization compared to the global average; from a yield perspective, the average yield of China's foreign exchange reserves investments reached 3.2% between 2010 and 2019. In the Hong Kong stock market, the TTM dividend yield of the Hang Seng High Dividend Yield Index currently stands at 6.0%, demonstrating a strong yield advantage. - Short squeeze trading and pair trading are both evolving in the Hong Kong stock market. In the past two weeks, the leading directions of the Hong Kong stock market have mainly been in the industries with the largest proportion of open short sales in terms of market value, such as healthcare (4.07%), consumer discretionary (3.03%), and technology (2.83%). Overall, although the proportion of open short sales in the Hong Kong stock market has slightly decreased from its mid-June high to 2.43%, it still remains close to three times the historical average standard deviation level. As internal and external disruptive factors gradually ease, it is expected that there will be a significant downside potential in the future. However, since the overall rebound of the Hong Kong stock market on June 29, the A/H premium index has expanded by 2.1%, especially the targets with premiums in H shares have significantly narrowed their premiums in the recent period, including Montage Technology, GigaDevice Semiconductor Inc., Contemporary Amperex Technology, etc. In addition to the signs of the RMB exchange rate appreciating in the past two trading days and the continuous outflows of southbound ETFs (accumulated outflows of 125.6 billion yuan since March 5), which also indicate the impact of pair trading on H shares. In the short term, it is recommended to focus on directions with high fundamental certainty and event catalysis, including: 1) innovative pharmaceuticals (resilient performance + buyback support + overseas business development); 2) aviation (peak travel season + falling oil prices); 3) Siasun Robot & Automation (catalysts for the expected mass production); 4) strong industrial metal attributes (high growth performance + expectations of interest rate hikes). - Momentum trading in the AI computing power sector of the US stock market has returned significantly, and market risk appetite has simultaneously increased. Information technology, energy, and communication services sectors are leading the way, with the Philadelphia Semiconductor Index rising by 2.7%. SK Hynix's American Depositary Receipt (ADR) listed on the first day of trading closed up 12.8%, with oversubscription and strong performance confirming the continued momentum trading in AI hardware industry. Earlier in July, Meta had signaled the sale of excess computing power, triggering concerns in the market about the slowdown in capital expenditure by technology giants, leading to significant volatility in the semiconductor sector. However, market sentiment has reversed again recently, with Meta announcing a $13 billion Canadian dollar investment in the construction of a new data center, signaling a strong intention to increase capital expenditure. At the same time, Amazon submitted a filing to the SEC this week for a USD bond issuance, launching eight tranches of bond issuance; according to media reports from Bloomberg, CNBC, etc., the total size of this Amazon bond issuance is approximately $25 billion. Although there are divergent views in the short term on the sustainability of AI capital expenditures in the market, the actions of major players have not turned conservative, and the narrative of the arms race in computing power remains valid, becoming a key fundamental basis for supporting the continuation of this round of momentum trading. - As the US stock market's AI hardware chain and cloud computing capital expenditure validate each other, previous concerns may gradually dissipate, and the characteristics of momentum trading are expected to continue. As of July 10, the dynamic PEs of the S&P 500 (20.4x) and the Nasdaq 100 (23.3x) have expanded by 0.9 and 2.4 percentage points, respectively, from last week, still remaining relatively low compared to the high of June 2; at the same time, the Nasdaq 100 and MAG8 have raised their profit growth rates by 0.36 and 0.08 percentage points, respectively. Considering the current valuation levels and the trend of continuous upward revisions in performance, it is judged that the US stock market will maintain a pattern of volatile upward movement in the short term, and it is recommended to focus on: 1) the software industry that may see further inflow of funds; 2) the defense industry with high certainty in the face of prolonged geopolitical risks; 3) energy infrastructure benefiting from data center construction and electrification transition; 4) the financial sector (banks and Fintech) benefiting from capital returns and regulatory improvements. Risk factors: - Escalation of global geopolitical conflicts; deterioration of China-US relations; unexpected tightening of global central bank monetary policies; slower-than-expected economic recovery and policy implementation domestically; slower-than-expected progress in AI commercialization. If actual performance of US stocks falls short of expectations, forecast data may be biased.