China Galaxy Securities: HK Stocks Fundamentals Confirm Inflection Point; Mkt Confidence and Fund Flows Yet to Form Synergy

China Galaxy Securities published a report stating that Hong Kong stocks' earnings in 2026 are expected to continue a structural recovery trend, with overall profit growth improving compared with 2025, although divergence will remain the dominant theme. Earnings growth will mainly be driven by the AI industry chain, upstream resources and selected high-growth sectors, while a full recovery in traditional consumption and the property chain still awaits clearer macro signals. Looking ahead to 2H26, the Hong Kong stock market is factually a "valuation lowland", currently in a "maze", with a "long slope" as the direction and "building momentum" as the process. At present, fundamentals (revenue, earnings, ROE) have confirmed an inflection point, but market confidence and fund flows have yet to form synergy.

In terms of allocation, the broker recommends focusing on: (1) Tech innovation theme: Tech innovation will be a major investment theme for Hong Kong stocks. As the AI rally expands from pure hardware to computing power leasing, cloud services, semiconductors, humanoid robots and MaaS services across the entire industry chain, Hong Kong stocks’ structural disadvantages are expected to transform into relative advantages. (2) Dividend theme: Hong Kong dividend assets still offer allocation value overall, but internal divergence has become very pronounced. Although the energy sector, which led gains in the first half of the year, features high dividend yields, part of its safety margin has been priced in after the rally. In contrast, REITs, telecom services, consumer dividend plays and utilities, supported by a combination of "high dividend yield + moderate gains + ROE improvement", are emerging as the most cost-effective directions at present. (da/u)