Today (March 4), prominent economist and Chief Investment Officer of Lianhua Asset Management Hong Hao shared valuable insights during an online discussion, addressing current geopolitical conflicts, liquidity indicators, China's short-term economic cycle, Hong Kong's economy, and the future trajectory of the Hong Kong stock market.

Hong Hao believes that the market has not yet fully priced in risk premiums for geopolitical uncertainty. A definitive resolution will only come with a turning point in the Iran conflict, though the timing of such a shift remains unclear.

Using his proprietary quantitative model, Hong Hao analyzed that the U.S. semiconductor sector's 3-4 year short cycle is gradually peaking. This cycle indicator closely aligns with the movement of the S&P 500, suggesting limited upside for the index. Additionally, the U.S. dollar may rebound due to war impacts, having already risen to around 99, signaling a contraction in dollar liquidity that is unfavorable for risk assets.

Hong Hao further pointed out that global liquidity indicators have reached high levels and are poised to decline, consistent with a stronger dollar, cyclical downturns, and pressure on risk assets.

Regarding the metals market, Hong Hao believes the rally is not over. Global liquidity leads metal prices by about six months, and with substantial wartime demand for metals, the upward trend remains intact. Measured in gold terms, metals are still at historically low levels, indicating under-allocation and significant rebound potential.

For the Hong Kong market, Hong Hao noted that Hong Kong's economic cycle indicator has slowed rapidly since its low in October 2022. The Hang Seng Index is under clear pressure, and even if short-term technical rebounds occur, they should be avoided in favor of better future opportunities. In contrast, A-shares are in a relatively better position due to RMB appreciation and policy support.

Additionally, the banking sector's relative returns are at historical lows, with a much higher probability of recovery than further decline, while growth stocks have reached historically high performance levels. Against the backdrop of global liquidity tightening, the market may be rotating from growth to value, making it a good time to reconsider opportunities in value stocks.

Risk premiums have not yet been fully priced in, awaiting a turning point in the conflict. This year is characterized by significant volatility, as seen in historic swings in gold, silver, and geopolitical tensions. The market is still assessing how much risk premium to assign to this uncertainty, but no consensus has been reached.

Regarding the U.S. semiconductor cycle, Hong Hao's model shows it peaking, implying limited upside for the S&P 500. While AI technology will continue advancing exponentially, financial markets may have already overpriced future gains. The theme for this year is "taking profits when full," suggesting caution after substantial gains.

The dollar's technical rebound, driven by war impacts, points to liquidity contraction, which is unfavorable for risk assets. However, war also acts as an inflation accelerator, boosting prices of hard assets like oil and metals.

Global liquidity indicators are at regional highs but expected to decline soon. The dollar's strength aligns with historical patterns, and despite this, gold may perform well as a traditional safe-haven asset.

From a long-term perspective, the S&P 500 is at the midpoint of a 35-year cycle, hovering at high levels. Metals, priced in gold, remain undervalued, with room for upward movement given wartime demand and liquidity trends.

Hong Hao advises against participating in technical rebounds in Hong Kong stocks, preferring to wait for better entry points. The Hong Kong economic cycle has slowed noticeably, pressuring the Hang Seng Index. In contrast, mainland China's short-term economic cycle remains relatively high, supported by potential policy measures.

The banking sector's relative returns are at lows, suggesting a high probability of recovery. With growth stocks at peaks and liquidity conditions expected to weaken, a rotation toward value stocks may be underway. This aligns with Hong Kong's economic slowdown, indicating that better buying opportunities for the Hang Seng Index lie ahead, not at present. As China's short-term economic cycle peaks, a defensive rotation may begin, highlighting opportunities in value stocks.