As we look towards the second half of 2026, the easing of geopolitical tensions prompts a reassessment of market dynamics. The question arises: will the logic driving asset prices shift once more? Should a rebalancing occur, which sectors stand to benefit?
Macro and Strategy: The 2026 "Second Half" – Steady and Prudent Progress
The recent Middle East geopolitical conflict has largely unfolded within market expectations, avoiding an uncontrolled escalation. Its impact has been twofold: firstly on oil prices and related supply chains, and secondly on inflation concerns stemming from higher oil prices, which raised fears of tighter Federal Reserve policy and potential negative effects on the global economy.
With the Strait of Hormuz gradually reopening, the pressure on oil prices has subsided. While tensions may resurface, market expectations for the oil price range have largely solidified. A significant further decline to very low levels seems unlikely, but a sharp rebound is also not easily anticipated. Consequently, oil's influence on global inflation and liquidity is expected to remain relatively moderate.
Monitoring AI Trends and Seeking Opportunities Beyond
The first half saw a highly concentrated market rally in A-shares, particularly in the second quarter, dominated by AI-related industries. Diverging views are emerging on whether this AI trend can persist. A dual approach is warranted. On one hand, it is crucial to closely monitor the development of AI, including whether advancements in large language models can boost overall societal productivity, thereby enabling related companies to increase AI capital expenditures, potentially through debt. If this thesis holds, the AI industrial trend may continue. However, significant volatility in the AI sector could emerge if the industrial trend or capital expenditure plans shift.
On the other hand, actively seeking investment opportunities outside of AI is essential, such as in domestic demand-related sectors. These sectors faced fundamental pressures and weak stock performance in the first half. The focus for the second half will be on their recovery process. Should a genuine earnings inflection point materialize, the currently low valuations could present attractive investment opportunities.
A third area of focus is the export chain. While temporarily pressured in the first half by factors like geopolitical conflict, China's manufacturing sector maintains strong global competitiveness in both cost and quality. As uncertainties fade, the export chain could resume a high growth trajectory.
Viewing Market Rebalancing Through the Lens of Investment Prudence
The market this year has exhibited extreme structural characteristics, with the proportion of companies trading at price-to-book ratios above 10 times reaching historically high levels. While pinpointing the end of such a phase is difficult, historical cycles and market fundamentals suggest a reversion is likely. The current high valuations price in peak short-term industry prosperity, making the market vulnerable to significant volatility if that prosperity wanes.
Therefore, considering a rebalancing strategy is prudent. Beyond AI, allocating to more resilient assets can help hedge against potential high volatility. Simultaneously, the possibility of an earnings turnaround for non-AI assets is gradually increasing. Once such a拐点 occurs, the recovery potential for many sectors may not be inferior to that of current high-flying industries.
Hong Kong Shares: Refocusing on Growth as Geopolitics Ease
Multiple Tailwinds for Hong Kong Stocks in the Second Half
In the first half, the Hang Seng Index underperformed major global markets, weighed down by overseas uncertainties and weak corporate earnings. With the recent easing of geopolitical tensions, Hong Kong stocks may see multiple positive developments.
External Environment
1) Easing Geopolitical Tensions: Since the Middle East conflict in March, rising oil prices impacted global manufacturing, causing significant market concern and volatility. Recent developments, including a US-Iran memorandum leading to a ceasefire, suggest progress. Oil prices have already retreated from their highs. The key remains the normalization of Strait shipping volumes; once achieved, the potential negative impact on the global economy will further diminish.
2) Stable Fed Policy Likely: Linked to the Middle East situation, the initial market worry over inflation has subsided as negotiations progressed and actual price pressures moderated, naturally altering expectations for Fed rate cuts. The base case remains that a rate hike this year is unlikely. Against a backdrop of falling oil prices and a low base, Fed policy is expected to stay stable.
3) Weakening "Magnetic Pull" Effect and Potential Asset Rebalancing: Since the start of the year, overseas AI-related semiconductor hardware companies saw sustained profit upgrades driven by demand and price increases, creating a strong "magnetic pull" for funds towards markets like South Korea and Taiwan. However, while AI demand is strong, significant demand pull in consumer electronics and industrial/automotive sectors has not yet materialized. As marginal price increases slow, profit upgrade expectations for related listed companies will also change. During the subsequent capital rebalancing, undervalued markets are likely to attract more favor.
Corporate Earnings Front
1) Internet Sector Poised for Earnings Improvement: Previous earnings downgrades in the internet sector were partly due to food delivery subsidy wars. Recent quarterly reports show improvement as companies enhanced efficiency, controlled costs, and reduced subsidies, a trend supported by高频 data.
2) Structural Bright Spots in Other Industries: The automotive sector was weak due to seasonal factors in Q1; the focus this year may shift to manufacturers with strong export momentum. While cost pressures in the mobile phone sector persist, their impact is expected to marginally slow in the second half.
Focus on High-Dividend and Growth Assets in Hong Kong
Currently in a phase of震荡复苏, Hong Kong's market presents relatively lower downside risk and valuations compared to other markets. As external risk sentiment recedes and corporate earnings recover, upside potential and opportunities should expand. Capital rebalancing could lead to fund inflows.
From the perspectives of fund flows and valuation, multiple sectors offer growth opportunities. Assets favored by insurers for their high dividends, as well as assets complementary and稀缺 to A-shares, present long-term opportunities.
1) Sectors like internet technology, healthcare, new consumer, and advanced manufacturing, currently trading below their five-year valuation averages and possessing growth potential, could experience extended upward cycles.
2) Furthermore, an increasing number of new IPOs are in new economy fields (spanning AI, robotics, semiconductors, healthcare innovation, etc.), making related opportunities worth watching.
Hang Seng Tech: Broad-Based Earnings Improvement Potential
The index's composition is more diverse than hardware-focused indices like the Philadelphia Semiconductor Index. It includes internet giants, semiconductor foundries, mobile phone components, new energy vehicle makers,手机 brands, software services, and even some home appliance companies, with a relative tilt towards software services.
Earnings improvements are anticipated across several sub-sectors, many of which are at cyclical lows. Following Q2, profit expectations for some may improve. This includes the aforementioned positive effect from easing internet food delivery subsidies. Additionally, benefits from AI investments in gaming, social media, and cloud services will gradually materialize. For new energy vehicle makers, recent upward revisions to exports for some companies provide positive,甚至超预期的, earnings support. Upstream and midstream semiconductor-related companies in Hong Kong maintain favorable景气度, and their performance remains看好.
Hong Kong Dividend Plays: Two Types of Opportunities
Sustained inflows from insurance and pension-related funds continue to provide solid support for high-dividend assets in Hong Kong. Two types of opportunities are值得关注:
1) Companies with improving fundamentals, strong financial systems, and healthy balance sheets. Examples include Hong Kong本地 enterprises benefiting from the property market复苏, and个别 companies operating with zero debt and exceptionally strong balance sheets. Some new consumer companies, after significant adjustments, now offer attractive valuations and earnings growth expectations alongside good dividend distribution capabilities.
2) Sectors with stable earnings expectations, such as banks and telecom operators, which exhibit relatively steady profit changes. These assets remain important components of asset allocation regardless of immediate changes in the overseas geopolitical landscape.
Comments