Valuation safety cushion + Southbound window opens; institutions highlight "recovery and defense" as the two main themes for Hong Kong stocks

Cailian Press, March 10 (Editor: Hu Jiarong) Today, Asian markets fully rebounded, with the three major Hong Kong stock indices rising simultaneously. As of the latest report, the Hang Seng Index increased by 1.61%, to 25,817.78 points; the Hang Seng Tech Index rose by 1.75%, to 5,028.30 points; and the Hang Seng China Enterprises Index gained 1.15%, to 8,679.52 points.

Notably, Hong Kong stocks collectively declined last week. By the close on Friday, the Hang Seng Index had fallen by 3.28%, to 25,757.29 points; the Tech Index increased by 3.70%, to 4,947.50 points; and the China Enterprises Index rose by 2.61%, to 8,628.13 points.

Galaxy Securities pointed out that last week’s Hong Kong stock market was not a broad decline but a structural asset reallocation driven by the HALO strategy and accelerated by geopolitical events. The analysis indicates that the core of the HALO strategy is to “go long on heavy assets that AI cannot easily replace” (such as energy, power grids, and mineral resources), and “short on light assets that are easily disrupted by AI” (such as certain software and internet platforms).

This strategy is spreading from the US stock market to the global stage, significantly influencing Hong Kong stock style preferences, leading to pressure on the Hang Seng Tech Index and a pullback in information technology and discretionary consumer sectors. The sectors leading gains this week—oil and petrochemicals, coal, utilities, and telecommunications—are precisely the core allocations of the HALO strategy.

Clear capital flows reflect this strategic shift: high-dividend, cash-flow-heavy heavy assets are favored, while light assets sensitive to AI disruption face short-term pressure, highlighting a market preference for “certainty assets.”

Valuation and Risk Appetite: Value Allocation Gradually Emerging

Valuation Levels: Increased Margin of Safety

As of March 6, 2026, the Hang Seng Index’s P/E ratio was 11.73 (75th percentile since 2010), and its P/B ratio was 1.20 (51st percentile). Valuations are in a historically neutral and reasonably moderate range, with limited downside potential.

Risk Premium: Divergence from Domestic and International Perspectives

Based on the 10-year US Treasury yield (4.15%, up 18 basis points this week), the Hang Seng risk premium is 4.38%, at the 8th percentile since 2010 (below the 3-year average of 1.38 standard deviations), indicating a significant increase in relative attractiveness compared to US Treasuries.

Using the 10-year China government bond yield (1.781%, down slightly by 0.67 basis points this week) as a benchmark, the risk premium is 6.74% (51st percentile, below the average by 1.33 standard deviations), reflecting a more balanced valuation outlook for Hong Kong stocks relative to domestic capital.

AH Premium: Southbound Investment Window Opens

The Hang Seng Shanghai-Shenzhen-Hong Kong Stock Connect A-H Premium Index stands at 121.26 (up 3.09 points this week), at the 20.03rd percentile since 2014. The valuation advantage of H-shares over A-shares is evident, providing a medium- to long-term opportunity for southbound funds to allocate.

Market Outlook: Sentiment Repair Window and Allocation Themes

Galaxy Securities forecasts that mid to late March will be a key observation period. As restrictions ease marginally and annual report earnings risks are fully released, market sentiment is expected to recover. Focus should be on the following themes:

Technology Sector: Valuation Repair Expected

Currently, the technology sector has already priced in pessimistic expectations. With risk appetite returning, a “first decline then rise” pattern is likely, making it a medium- to long-term allocation candidate.

Cyclical Resources: Policy and Geopolitical Catalysts

Policies against “involution” are promoting profits for resource-based companies; combined with geopolitical factors like Iran tensions, sectors such as coal, oil and gas, and chemicals offer price elasticity and high dividend defensive qualities.

Innovative Pharmaceuticals: Earnings Upgrades Key

Intensive clinical data releases and successful overseas business expansion are putting biotech companies into an earnings validation window. If the US dollar index declines, sector resilience could further improve.

High-Dividend Defensive Assets: Hedge Against Uncertainty

Energy, shipping, telecom operators, utilities, and high-dividend financial stocks with stable cash flows and attractive yields can effectively hedge against geopolitical volatility and market disruptions.