Citigroup: The outlook for Hong Kong stocks is better than A-shares, overall market optimism for 2026

Citi's China equity strategist Liu Xianda shared the outlook for the mainland and Hong Kong stock markets in 2026. He stated that Citi is slightly more optimistic about the Hong Kong stock market compared to the A-share market, but overall maintains a positive attitude towards the Chinese stock market. The main reason is the advancement of China's "14th Five-Year Plan," which is expected to bring favorable conditions to the market. Additionally, the release of the "Two Sessions" report in March may further boost market confidence through policy support. Furthermore, positive signals such as the clarification of the export environment will inject more momentum into the Hong Kong stock market.

Liu Xianda pointed out that Citi is confident in the export and investment sectors, especially against the backdrop of a gradually recovering global economy. However, it holds a more cautious attitude towards the consumer sector. He noted that factors such as China's aging population and declining birth rates have suppressed growth in the consumer sector. Therefore, Citi has downgraded the rating for consumer-related sectors to "neutral." Additionally, the high inventory issue in the real estate industry is also a risk that needs to be monitored.

When discussing specific industries, Liu Xianda emphasized that semiconductors and communication equipment are Citi's preferences for 2026. The Chinese government aims to promote localized production, and the support for related policies is expected to increase, releasing more growth potential for these industries.

Liu Xianda anticipates that the Hang Seng Index is likely to break through 30,000 points in 2026. He pointed out that technology, healthcare, internet, and materials sectors will be the main growth drivers. Among them, the rating for the materials sector has been upgraded from "neutral" to "overweight," with particular optimism for copper and aluminum sectors. However, Citi holds a cautious attitude towards sub-sectors such as cement and coal.

Despite external controversies regarding the valuation of Chinese tech stocks, Liu Xianda believes that compared to markets like South Korea, the valuation of Chinese tech stocks is not considered high. He emphasized that the reasonableness of valuation depends on whether companies can meet market expectations, which is the key focus for investors