China Galaxy Securities has released a strategic research report suggesting that the technology sector remains the primary long-term investment theme for Hong Kong stocks. Concerns surrounding artificial intelligence (AI) have, counterintuitively, created buying opportunities. The rise of China's AI capabilities is expected to bolster market confidence, although a full restoration of sentiment will require more time. The cyclical sector holds medium to long-term allocation value. Initiatives like "anti-involution" policies are anticipated to enhance industry profitability. Concurrently, a perceived loosening in the US dollar credit system is prompting a revaluation of physical assets such as commodities. This, combined with the sustained surge in demand for new energy, is poised to drive a new cycle of growth. A comprehensive recovery in the consumer sector hinges on improvements in the macroeconomic environment and a rebound in household confidence. Furthermore, attention should be paid to industries likely to benefit from policy support during the 2026 Two Sessions, particularly those aligned with the 15th Five-Year Plan. Key views from China Galaxy Securities are as follows:
**Hong Kong Market Performance This Week** (1) For the week of February 23rd to February 28th, major global stock indices showed mixed performance. Hong Kong's three major indices diverged: the Hang Seng Index rose by 0.82%, while the Hang Seng Tech Index fell by 1.41% and the Hang Seng China Enterprises Index declined by 1.12%. (2) At the sector level, five primary industries in Hong Kong advanced this week, while six declined. Materials, Real Estate, and Utilities led the gains, rising by 5.36%, 2.48%, and 1.60% respectively. Healthcare, Information Technology, and Consumer Discretionary were the top decliners, falling by 4.20%, 1.80%, and 1.55% respectively. Among secondary industries, Steel, Chemicals, Nonferrous Metals, Real Estate Investment Trusts, and Coal led the gains. Paper & Packaging, Consumer Durables, Household Goods, Pharmaceuticals & Biotechnology, and Media were among the top decliners.
**Hong Kong Market Liquidity This Week** (1) The average daily turnover on the Hong Kong Exchanges and Clearing this week was HKD 241.836 billion, an increase of HKD 116.578 billion from the previous week. (2) Southbound capital recorded a cumulative net inflow of HKD 6.705 billion this week, a decrease of HKD 21.095 billion compared to the net inflow last week. (3) Over the seven days leading up to February 25th, global active foreign funds recorded a net inflow of USD 238 million into Hong Kong-listed Chinese shares, while global passive foreign funds recorded a net inflow of USD 2.186 billion. These figures represent a decrease of USD 83 million and an increase of USD 1.489 billion, respectively, compared to the previous week's inflows.
**Hong Kong Market Valuation and Risk Appetite** (1) As of February 27th, 2026, the Hang Seng Index's Price-to-Earnings (PE) ratio was 11.98x and its Price-to-Book (PB) ratio was 1.23x. These levels stand at the 77th and 55th percentiles, respectively, relative to historical data since 2010. (2) The yield on the 10-year US Treasury note fell by 11 basis points from the previous Friday to 3.97%. The risk premium for the Hang Seng Index was 4.38%, which is -1.40 standard deviations below its three-year rolling average, placing it at the 8th percentile since 2010. The yield on the 10-year Chinese government bond decreased by 0.22 basis points from the previous Friday to 1.7877%. The risk premium for the Hang Seng Index was 6.56%, which is -1.50 standard deviations below its three-year rolling average, placing it at the 45th percentile since 2010. (3) The Hang Seng Stock Connect Hong Kong-AH Premium Index increased by 1.77 points from the previous Friday to 118.17, situating it at the 12.21st percentile level since 2014.
**Investment Outlook for the Hong Kong Market** Internationally, the US and Israel launched attacks against Iran. Israeli officials stated that the targets included Iran's Supreme Leader, President, and Commander of the Armed Forces. The US is reportedly planning a multi-day campaign of strikes. Former President Trump delivered his longest-ever speech to the US Congress, lasting one hour and forty-seven minutes. The US economy and cost of living were key themes, and Trump also made statements regarding illegal immigration and ending various conflicts worldwide. New global tariffs proposed by Trump have taken effect at a 10% rate, and White House officials have indicated efforts are underway to update this rate to 15%. Looking ahead, short-term market movements may continue to digest emotional fluctuations; however, the fundamental medium to long-term supportive factors remain intact.
**Risk Warnings** Potential risks include domestic policy measures falling short of expectations in terms of intensity or effectiveness; overseas interest rate cuts being less substantial than anticipated; and instability in market sentiment.
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