CITIC Securities has released a research report stating that the short-term linkage between the A-share and Hong Kong stock markets is continuously strengthening, but differences remain in style, sector performance, and earnings cycles. A-share earnings growth is already supported by more solid fundamentals, though it is mainly concentrated in a few areas; Hong Kong stocks have more potential earnings recovery opportunities. The preference is to allocate to A-share growth targets with fundamental support, while also positioning in low-volatility and value styles to enhance portfolio defensiveness, and selectively capture recovery opportunities in Hong Kong's financial, pharmaceutical, and consumer sectors. The main views of CITIC Securities Company Limited (ASX: 600030) are as follows:
Style: Cross-market correlation rising, but style preferences still differ between the two markets. In the first three quarters of 2026, A-shares saw a greater number of factors generating positive returns, with low volatility, growth, momentum, and profitability factors leading the performance; Hong Kong stocks were mainly driven by profitability, value, and large-cap styles. In addition, momentum factors in both markets peaked at the end of June and then reversed sharply in the third quarter. Overall, since 2026, the cross-market correlation of volatility and momentum factors has increased, strengthening short-term A/H linkage, but the medium-term style preferences of each market still differ.
Sectors: A/H market linkage strengthening, but differentiated opportunities remain. By market, in the third quarter, A-share consumer and pharmaceutical, financial, and cyclical sectors rebounded from the doldrums of the first half, with the range of sectors showing improved returns expanding noticeably; Hong Kong's manufacturing and technology sectors turned from positive to negative returns, while financial and infrastructure and real estate sectors led performance. Comparing the A/H markets, sector linkage has strengthened, but leading sectors and return magnitudes still differ, and cross-market relative value opportunities remain, especially in consumer and some technology sectors. A-share earnings growth has stronger fundamental support, while Hong Kong stocks have more potential recovery opportunities. Areas with stronger A-share earnings growth are mainly concentrated in technology, some advanced manufacturing, and mid-cap stocks; Hong Kong's overall recovery relies more on an earnings inflection point in the second half of the year. Based on the differences in earnings cycles between the two markets, the preference is to allocate to A-share growth targets with fundamental support, while selectively capturing recovery opportunities in Hong Kong's financial, pharmaceutical, and consumer sectors.
A-shares and Hong Kong stocks should be positioned separately, not with the same set of China asset allocation strategies. For A-shares, it is recommended to seize growth opportunities already supported by earnings, and balance portfolio risk with low-volatility and value styles; for Hong Kong stocks, it is recommended to continue allocating to high-profitability stocks and leading financial sectors, while selectively capturing earnings recovery opportunities in pharmaceuticals and consumer sectors. Rising A/H correlation means greater attention must be paid to short-term risks brought by common factors; however, leading styles, sector returns, and earnings cycles still differ, and cross-market relative value opportunities remain.
Risk factors: Model overfitting risk; risk of significant market volatility; risk of major changes in macroeconomic and industrial policies; risk of individual stock earnings falling short of expectations.
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