On August 2, geopolitical tensions rose and market risk appetite cooled, triggering a significant decline in the Hong Kong stock market. The hang Seng index fell 477 points, or 2.4%, to close at 19689, a new closing low for more than two months, but still above its may low. The Hang Seng Composite Index fell 3.0% to 4194. Turnover in the big market increased slightly to more than HK $118 billion, while Hong Kong stocks recorded a net inflow of HK $2.288 billion.

Judging from the capital flows in the last two days, risk aversion has indeed risen, with the onshore and offshore renminbi weakening slightly, but still in the range of volatility since May, and the yen's role as a safe haven currency in Asia has strengthened sharply. Money flowed into gold, US stocks and US Treasuries. For example, interest rates on 10-year US bonds have fallen by 27 basis points in the past five trading days, of which real interest rates have fallen by 36 basis points and inflation expectations have risen by 9 basis points. Despite the current geopolitical tensions, Taiwan's weighted index has also fallen only 1.6 per cent. Past history also shows that the geographical situation has a short-term impact on the stock market, and the stock market will soon return to its original trajectory.

On the whole, we believe that the adjustment of Hong Kong stocks since July is a collection of macro and micro factors, including increased economic pressure, downward revision of medium-term profit forecasts, revision of policy expectations, repeated epidemic situations, interest rate increases by the Federal Reserve, audit differences between China and the United States, and so on. Yesterday's decline is only an extension of the decline and emotional catharsis since July.

For the time being, we do not see any sign of large-scale reduction of foreign holdings in Hong Kong stocks, mainly due to:

1) the average daily turnover of the Hong Kong stock market rising in May and June is higher than that in July, indicating that buying is more than selling.

2) the market only recorded a turnover of more than HK $100 billion yesterday, and most investors still wait and see.

3) as of August 1st, the number of fund issuing units of Southern Hang Seng Technology (3033 HK) reached 4.22 billion, which increased rather than decreased, and the number of issued units also increased by 190 million compared with the end of June, indicating that foreign and institutional investors did not sell on a large scale after reconfiguring the technology index in May and June.

4) northbound funds do not continue to flow out of the A-share market.

In our medium-term strategy in June, we drew attention to the economic situation in the mainland in the third quarter, overseas tightening pressure and the adjustment risk that the Sino-US game may heat up to Hong Kong stocks, and forecast the volatility of the Hang Seng Index to be 19500-24300 points in the second half of the year. The current index has fallen to the lower limit of the forecast, and the valuations of Hong Kong stocks are also sustainable. there is no need to amplify pessimism, control the position and pay attention to the rhythm.

It is recommended to continue to allocate sectors with high cash flow and high dividends, such as oil, coal and telecommunications, and to absorb 1) Internet giants; 2) mid-stream manufacturing and consumption that benefit from narrowed PPI-CPI scissors; and 3) social service sectors that benefit from optimized epidemic prevention measures.

New energy car-building new forces have released July delivery data, ideal, Xiaopeng and Weilai's delivery volume increased by 21.3% and 43.0% respectively compared with the same period last year. The delivery volume of second-tier brands such as Nashi cars and zero-running cars in July also surpassed the three new forces such as Wei Xiaoli, with delivery growth rates of 133.5% and 177.0% respectively. New energy vehicles are in the blue ocean market and have great potential for development. policy support and battery technology improvement accelerate the rapid increase of permeability. As major brands start a new product cycle, such as the ideal L9 and Xiaopeng's G9, it is expected that the industry will continue to maintain a relatively high demeanor, but the competition in the industry may become more fierce and the performance and stock price performance will be differentiated.