GF SECURITIES·2025-12-30 10:43Core Insights - The current rise in Hong Kong stocks is supported by fundamentals, with signs of structural recovery in profitability starting from the second half of 2024, driven by stabilization in both domestic and external demand and macroeconomic policies [3][10] - The growth in high-end manufacturing and technology is transitioning from "single-point breakthroughs" to "multi-point explosions," with Hong Kong stocks shifting focus from traditional economic cycles to hard technology sectors like AI applications, new energy, and semiconductors [3][9] - The Hang Seng Index's earnings growth is expected to rebound to 10.8% in 2026, indicating a potential shift from liquidity-driven growth to a combination of profitability and liquidity support [3][11] Group 1: Fundamental Support for Hong Kong Stocks - Historical correlation exists between the Hang Seng Index's performance and earnings growth, with the current strength primarily driven by net inflows from southbound funds and foreign capital [10] - The structural recovery in profitability is evident, particularly in sectors less affected by traditional economic pressures, with emerging industries like pharmaceuticals and technology showing significant growth [20][19] - The impact of external factors, such as the recent food delivery subsidy war, has temporarily disrupted earnings expectations but is not indicative of a fundamental downturn [10][11] Group 2: Market Sentiment and Liquidity - Current market sentiment may have adjusted, and a potential liquidity improvement could lead to a new upward trend in Hong Kong stocks [3][31] - The Hang Seng Technology Index has experienced volatility due to external liquidity pressures, but the peak of lock-up share releases has passed, reducing market sentiment pressure [33][32] - Factors such as the potential for a dovish shift in the next Federal Reserve chair's policies and the stabilization of the Hong Kong dollar could alleviate liquidity constraints [50][52] Group 3: Sector Allocation Strategies - Focus on growth sectors, particularly those related to AI applications, energy storage, and innovative pharmaceuticals, as they are expected to catalyze earnings improvements [3][9] - Economic cycle-related assets should be monitored for potential supply-demand mismatches, particularly in chemicals and metals [3][19] - Stable value assets may still provide absolute returns, but the cost-effectiveness may decline compared to previous years, necessitating a focus on sectors with supply barriers and pricing power [3][30]