The Hang Seng Index (HSI) shows a slight rebound after collapse

The Hong Kong Hang Seng Index (HSI) is showing a technical rebound today after yesterday’s collapse.

The benchmark quotes are growing by 0.5%. China’s Hang Seng Tech (HSTECH) index of technology companies added 3%.

Quotes of the benchmark at the moment (early morning October 25) are kept in the region of 15 250 p. Of the 69 shares of the index, about 39 are traded in positive territory. Outperforming: the technology sector and cyclical consumer goods manufacturers. 

The assessment of the environment remains moderately negative. Prices for new housing in the 70 largest cities in China continued to decline. In September it amounted to 0.28% m/m. Home sales decreased by 15% y/y compared with a fall of 21% y/y in August. Investments in real estate decreased by 12% y/y against 14% y/y last month.

The data shows a slight improvement in dynamics, but the weakness of the sector will most likely continue into the next year.

In addition, according to a recent report by Gamma Data, a Chinese research company specializing in video games, films, and television programs, in the first 9 months of the year (YTD), mobile video game sales in China fell by 19% y/y. In the third quarter, which is usually the peak due to the two-month school holidays, they fell by 13% QoQ. The fall y/y reached 25%. The entire gaming industry in mainland China totaled 207 billion yuan (-7.5% YoY).

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The reasons for the negative dynamics are the decrease in the number of active players and the number of hours spent playing the game, the weakening of the solvency of users, and the small number of licenses for new video games issued by the PRC regulator.

Quotes of NetEase (9999) and Tencent (700) are under pressure due to the negative dynamics in the industry. Investors should expect a return to growth in the mobile video game market no earlier than next year.

What’s next?

On Thursday, October 27, the dynamics of profits of industrial enterprises in China for September will become known. In August for the first 8 months (YDT) it was negative (-2.1%).

Baidu (9888) and PetroChina (857) should submit their financial statements for the III quarter on Friday, October 28.

The P/B (price/book value) multiple of the Hang Seng index dropped to 0.61x. Even if we suggest that something is wrong with the assessment of the book value of Chinese companies twice, the securities will remain attractive for investments.

Attractive stocks

Recommendations for Sino Biopharmaceutical (1177), Xiaomi (1810), JD.com (9618), Alibaba (9988), WH Group (288), and Tencent (700) remain unchanged. Traders can continue to hold positions. There are no signals for any action yet. Opportunities for averaging over some securities still remain.

The main risk for positions is the growth of internal and geopolitical tensions.