According to a research report by BOCOM INTL, the main disruption for Hong Kong stocks in March did not stem from fundamentals but from geopolitical uncertainty in the Middle East. Spillover effects impacted global risk appetite, causing Hong Kong stocks to follow emerging markets under pressure. In late March, with the release of U.S. strategic petroleum reserves, temporary exemptions for crude oil sanctions, and the initiation of U.S.-Iran diplomatic contacts through Pakistan, signals of phased easing emerged in the Middle East, and oil prices retreated to around $100 per barrel. If the conflict does not escalate further in April, the accumulated risk premium may gradually unwind, providing room for market valuation recovery. Key views from BOCOM INTL are as follows:
Hong Kong stocks consolidated in March, with geopolitical uncertainty being the core influencing factor. The primary disruption for Hong Kong stocks in March was not due to fundamentals but rather Middle East geopolitical risks. As tensions escalated during the month, Brent crude approached $120 per barrel, and risk premiums for shipping through the Strait of Hormuz surged sharply. Spillover effects dampened global risk appetite, and Hong Kong stocks faced pressure alongside other emerging markets. At the same time, the密集 earnings report season in March led to performance divergence, with southbound capital adopting a quick-in, quick-out strategy and taking phased profits, while shifting focus toward defensive sectors such as high-dividend energy and banking stocks. Overall, the market lacked stabilization conditions under multiple disruptions, leading to index pressure.
April enters a critical window: expectations of geopolitical de-escalation and anticipated catalysts from the Sino-U.S. leaders’ meeting. In late March, with the release of U.S. strategic petroleum reserves, temporary exemptions for crude oil sanctions, and the initiation of U.S.-Iran diplomatic contacts through Pakistan, signals of phased easing emerged in the Middle East, and oil prices retreated to around $100 per barrel. If the conflict does not escalate further in April, the accumulated risk premium may gradually unwind, providing room for market valuation recovery. The scheduling of the Sino-U.S. leaders’ meeting, with senior officials from both sides having discussed the framework in Paris in mid-March, will be a key focus for Hong Kong stock market sentiment. Coupled with the gradual clearance of technical pressures from annual reports and share unlock events in April, Hong Kong stocks may slowly transition from a high-volatility phase to a period of bottoming and stabilization.
Sector allocation: both ends of the barbell strategy present layout opportunities, with a shift from defense to balanced offense and defense. 1) With expectations of fading geopolitical risk premiums and catalysts from the Sino-U.S. leaders’ meeting, the oversold technology sector has room for mean reversion and recovery. Focus on leading internet platforms with valuations still at historically low-to-mid levels and increasing share buyback efforts; monitor assets with industrial catalysts such as AI applications and autonomous driving. 2) Energy and commodities: If Middle East geopolitical uncertainty persists, high oil prices will continue to directly support earnings for mainland China’s energy sector, while gold benefits from global safe-haven demand and U.S. dollar credit pressure, maintaining a strategic overweight. If geopolitical risks quickly ease, consider switching from high-valuation energy stocks to lower-valuation ones to realize premiums. 3) High-dividend, low-volatility anchor positions: Until external uncertainties fully dissipate, high-dividend telecom operators, utilities, and banks remain core holdings for southbound capital. Continue holding them as tools for portfolio volatility management but consider reducing exposure and reallocating to more flexible sectors once geopolitical risks clearly decline.
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