Core Viewpoint - The article discusses the style rotation effect in the Hong Kong stock market, utilizing a multi-factor model based on five categories of information, achieving an annualized return of 19.50% and an annualized excess return of 8.98% compared to an equal-weighted benchmark [2][7]. Group 1: Characteristics and Influencing Factors of Hong Kong Stock Style Rotation - The technology and dividend styles in the Hong Kong stock market exhibit a long-term negative correlation in returns, indicating a clear rotation phenomenon, with short-term advantages rotating monthly and long-term advantages lasting over six months [4][11]. - The excess returns of the Hang Seng and CSI Hong Kong Stock Connect technology and dividend indices have maintained a strong positive correlation since mid-2020, while the excess returns of the dividend and technology styles have shown a strong negative correlation, making it suitable for constructing style rotation strategies [4][11]. - The rotation speed between technology and dividend styles is moderate, with short-term advantages rotating monthly and long-term advantages extending beyond six months [4][11]. Group 2: Multi-Factor Style Rotation Model Framework - A ridge logistic regression method with a collinearity penalty term is employed to confirm parameters and factors through rolling regression, ultimately determining the style rotation viewpoint through a simple binary classification [5][6]. - The model selects 101 indicators from five categories to assess the predictive ability of individual indicators, using a two-year rolling window for training [5][25]. - The model generates style holding views based on predicted probabilities, employing both a simple binary classification method and a buffer zone method to manage position adjustments [6][32]. Group 3: Model Performance and Insights - The simple binary classification model achieves an annualized return of 19.50%, with an annualized excess return of 8.98% and a relative volatility of 13.62%, demonstrating significant return enhancement capabilities [7][34]. - The model's average monthly return for predicting technology style outperformance is 1.78%, while for predicting dividend style outperformance, it is 1.17% [7][34]. - The model's performance has shown positive excess returns in most years, with notable years being 2020 and 2024, where excess returns exceeded 20% [7][39]. Group 4: Factors Influencing Style Rotation - Five dimensions are identified as influencing factors for style rotation: macroeconomic, funding, market, fundamental, and valuation indicators, with all indicators standardized to a monthly frequency [19][21]. - Macroeconomic indicators reflect the growth, inflation, and liquidity status of China, Hong Kong, and the U.S., highlighting the interconnectedness of these economies [19][20]. - Funding indicators include net inflows and preferences of southbound funds and global public funds, which are crucial for understanding style performance [21][22]. Group 5: Current Recommendations and Future Outlook - As of September 30, 2025, the latest recommendation is to allocate to the Hong Kong dividend style, primarily due to the negative correlation of selected volatility ratio factors with the probability of technology style outperformance [35][39]. - The analysis indicates that the dividend style has certain advantages in risk aversion, especially as the volatility of the technology style remains higher than that of the dividend style [35][39].

Group 1: Southbound Capital - Southbound capital has significantly flowed into the Hong Kong stock market in 2025, with a cumulative net purchase of 979 billion HKD from January to August, surpassing the total of 807.9 billion HKD for the entire year of 2024 [2][24]. - Despite the increasing transaction share of southbound capital, its net purchases have shown little predictive power for the future movements of the Hang Seng Index, with a negative correlation observed between daily net purchases and index fluctuations [2][24]. - The top 10% of stocks by net purchase amount from southbound capital yielded an annualized return of 12.08%, significantly higher than the average of 2.61% and the bottom 10% group which saw a return of -2.94% [3][29]. Group 2: Industry Rotation - The analysis of industry rotation indicates that the southbound net purchase amount has a poor monotonicity across industries, but after adjusting for transaction amounts, the excess returns for bullish positions significantly improve, with the top three industries showing an annualized return of 11.64% [4][32]. - The retail sector, particularly represented by Alibaba, has been the most favored by southbound capital, with a net purchase scale significantly outperforming other sectors [4][32]. - The report highlights the effectiveness of style factors in guiding industry allocation, with growth and long-term momentum factors showing particularly strong performance in the Hong Kong market [6][65]. Group 3: IPO Trends - The Hong Kong stock market has experienced a surge in IPO activity in 2025, with 43 companies listed by June 30, raising a total of 106.71 billion HKD, which is significantly higher than the 88.15 billion HKD raised in 2024 [7][38]. - Notable IPOs include Heng Rui Pharmaceutical and Ningde Times, which raised 11.3 billion HKD and 41 billion HKD respectively, indicating a strong market interest and improved liquidity [7][38]. - The new IPO regulations implemented in August 2025 aim to enhance the attractiveness of the Hong Kong market by reducing public shareholding requirements and shortening the listing review process [7][38]. Group 4: Real Estate Market - The Hong Kong real estate market is showing signs of stabilization following the government's removal of property control measures, which has significantly reduced transaction costs for residential properties [11][12]. - High-frequency data indicates a rebound in private residential price indices since March 2025, suggesting a recovery in market sentiment and price stabilization [12][11]. - The low-interest environment and financial wealth effects are contributing to the improved outlook for the real estate sector, with transaction volumes increasing significantly [11][12].

Group 1 - The Hong Kong stock market exhibits significant and prolonged style switching, with value and growth styles frequently alternating. Growth style shows explosive potential but lacks sustainability, while value style offers more stability in adverse conditions. Large-cap stocks have higher cumulative returns across multiple cycles and better ability to traverse cycles [3][14][15] - The driving factors for style rotation include changes in liquidity, valuation recovery, and policy guidance, with southbound capital inflows, interest rate cycles, industry regulation, and macro expectations shaping dominant styles in different phases [3][15][16] - The empirical performance of the risk parity model in multi-style strategy combinations shows robust excess return capabilities and risk control advantages, achieving an annualized return of 19.77% from March 2, 2015, to April 30, 2025, with an information ratio of 1.72 [3][15][16] Group 2 - The report highlights the structural differences in industry allocation among different style indices, with large-cap indices concentrated in stable sectors like finance, consumption, and utilities, while small-cap and growth indices focus more on technology, healthcare, and manufacturing, exhibiting higher volatility but stronger elasticity [3][17] - The value strategy, based on the PB-ROE model, aims to identify undervalued stocks with a focus on fundamental and valuation mismatches, achieving an annualized return of 13.91% while maintaining a 20% exposure to the financial sector to enhance value attributes [3][23][41] - The growth strategy targets high growth rates in revenue and net profit, achieving an annualized return of 22.66%, with a recent tilt towards core assets in healthcare and technology [3][23][41] Group 3 - The quality strategy focuses on companies with stable profitability, healthy cash flow, and optimized capital structure, yielding an annualized return of 11.48%, although recent market style shifts have narrowed excess returns [3][23][41] - The report emphasizes the importance of identifying and capturing style switching points to significantly enhance portfolio returns, suggesting that effective allocation among different style strategies can provide smoother navigation through various market environments [3][9][14] - The analysis of the past decade reveals that the Hong Kong stock market has experienced notable style shifts, with the performance of value and growth styles continuously alternating [3][9][14]