Market Performance - In Q1 2026, A-share market showed significant style differentiation, with the CSI 1000 index being the only broad index to rise, up by 0.32%, while major indices generally declined [1][3] - The Shenzhen Component Index, ChiNext Index, and Wind All A Index saw slight declines of 0.35%, 0.57%, and 1.15% respectively, while the Shanghai Composite Index fell by 1.94% and the CSI 300 dropped by 3.89% [3] - The North Exchange 50 performed the weakest, with a substantial decline of 13.34% in Q1 2026 [3] Industry Performance - Among 35 industries classified by Wind, 9 recorded gains in Q1 2026, with the oil and petrochemical and coal industries leading, rising by 18.27% and 17.64% respectively [5] - Utilities, building materials, and electrical equipment also performed well, with increases of 8.78%, 8.26%, and 6.02% respectively [5] - Consumer and financial real estate sectors faced significant declines, with discretionary retail down by 14.90% and non-bank financials down by 14.84% [5] Style Performance - In Q1 2026, small and mid-cap value and growth styles outperformed, while large-cap styles faced pressure [8] - Mid-cap value style was the strongest, with a cumulative increase of 7.50%, while mid-cap growth rose by 5.73% [8] - Large-cap growth index fell by 2.77%, and large-cap value index declined by 4.53% [8] Concept Performance - Energy and power infrastructure concepts led the market in Q1 2026, with the ultra-high voltage concept rising by 32.39% [10] - Fiberglass and oil and gas extraction indices also saw significant gains, exceeding 30% [10] - Other concepts like optical communication, shipping selection, TOPcon batteries, and rare metals selection rose over 20% [10] Company Listings - As of the end of Q1 2026, there were 5,496 listed companies in the A-share market, an increase of 26 from the end of 2025 [13] - The Shanghai main board had the highest number of listed companies at 1,703, accounting for 30.98% of the total [15] Market Capitalization - The total market capitalization of A-shares was 118.81 trillion yuan at the end of Q1 2026, a slight decrease of 0.1% from the end of 2025 [17] - The Shanghai main board's market capitalization was 62.94 trillion yuan, representing 52.93% of the total [19] Trading Volume - A-share market trading remained active in Q1 2026, with total trading volume reaching 144.5 trillion yuan, a quarter-on-quarter increase of 22.15% and a year-on-year increase of 66.28% [21] - The average daily trading volume was 25.97 billion yuan, up 29.43% quarter-on-quarter and 69.04% year-on-year [21] Margin Financing - As of the end of Q1 2026, the margin financing balance was 26.17 billion yuan, an increase of 2.41% from the end of 2025 and a year-on-year increase of 36.12% [25] Top Gainers and Losers - In Q1 2026, Hangzhou Electric Co. led the gainers with a cumulative increase of 253%, followed by Xuelang Environment at 232% and Tianzhong Precision at 210% [27] - The biggest loser was Tianpu Co., which fell by 55%, with Rongke Technology and Jin Hao Medical both down by 49% [27] Market Valuation - As of the end of Q1 2026, the highest P/E ratio among A-share boards was on the Sci-Tech Innovation Board at 195.68 times [43] - The lowest P/E ratio was in the financial sector at 7.72 times [47] IPO Activity - In Q1 2026, the A-share market saw 35 IPOs, a year-on-year increase of 29.63% [50] - The total fundraising from IPOs was 29.78 billion yuan, up 79.61% year-on-year [52] - The automotive and parts industry led with 6 IPOs, while the medical devices and services sector had 5 [55]

Group 1 - The Hong Kong stock market experienced a strong rebound on February 23, with major indices rising significantly, including the Hang Seng Index up by 2.53% to 27,081.91 points and the Hang Seng Tech Index up by 3.34% to 5,385.35 points [1] - Various sectors showed broad-based gains, with notable performances in metals, automotive, hardware, electrical equipment, consumer discretionary retail, and chemicals, which were key drivers of the market's upward movement [1] - Major internet stocks also performed well, with Tencent Holdings increasing by 3.07% and Alibaba rising by 3.47% [1] Group 2 - Analysts from Suzhou Securities indicated that the primary driver behind the Hong Kong market's rebound was improved expectations regarding external policies, particularly adjustments in U.S. tariff policies, which could enhance profit expectations for Chinese export-oriented, technology, and consumer companies [1] - The rebound in the Hong Kong market was also in line with the overall trends in global capital markets [1] - Several local Suzhou stocks performed exceptionally well during this rebound, including Zhixing Technology, which surged by 13.3%, and semiconductor company InnoCare, which rose by 10.07%, along with over ten local biopharmaceutical stocks showing strong performance [1] Group 3 - Overall, the Hong Kong market showed an upward trend during the three trading days while the A-share market was closed, with the Hang Seng Index accumulating a rise of 1.94% and the Hang Seng Tech Index increasing by 0.47% [2] - Following the positive start in the Hong Kong market, it is expected that the A-share market will likely open higher after the holiday [2] - Sectors such as AI applications, robotics, and media are anticipated to remain active in the upcoming trading sessions [2]

Market Overview - A-shares experienced a strong opening with all three major indices rising, marking the first trading day of the Year of the Horse positively, while Hong Kong stocks faced declines, with the Hang Seng Tech Index dropping over 2%, nearing a technical bear market [1] - Overnight, US tech stocks were hit hard, with the Dow, S&P 500, and Nasdaq all falling over 1%, with the S&P 500 giving back all its gains for the year and the Nasdaq down 2.64% year-to-date, ranking among the worst globally [1] Tech Sector Performance - The US tech sector is undergoing a shift between large-cap and small-cap stocks, indicating a change in market sentiment [3] - Major tech companies, referred to as the "Magnificent Seven," are facing significant declines, with Microsoft down over 20% year-to-date, Amazon also entering a technical bear market, and Meta experiencing a cumulative drop of 18.4% from its peak [8][10] - The overall market capitalization of the Magnificent Seven has approached $18 trillion, reflecting their dominance, but concerns are rising regarding the returns on massive capital expenditures in AI [12] Institutional Investment Trends - Institutions have been reducing their holdings in major tech stocks, with significant sell-offs noted in Nvidia, Apple, and Amazon, among others [16][17] - Despite the sell-off, Meta saw a slight increase in institutional holdings as some investors view it as a clear beneficiary of AI advancements [18] Economic Concerns - A recent article predicting an "AI apocalypse" by 2028 has gone viral, suggesting that while AI may drive productivity, it could lead to significant job losses and reduced consumer spending, creating a deflationary spiral [13] - Historical patterns indicate that technological revolutions have increasingly shorter timeframes for societal impact, raising concerns about the potential for a financial crisis linked to the current AI revolution [13] Cash Reserves and Market Sentiment - Berkshire Hathaway's cash reserves have reached a record $381.7 billion, surpassing its equity holdings for the first time, indicating a cautious approach amid market uncertainties [22] - This marks the fifth time in Buffett's history that cash holdings have exceeded stock investments, suggesting a potential market correction ahead [22]

Market Performance - During the week from February 16 to February 20, the Hong Kong stock market experienced fluctuations with the Hang Seng Index declining by 0.58% to 26,413.25 points, the Hang Seng Tech Index falling by 2.78% to 511.50 points, and the Hang Seng China Enterprises Index decreasing by 0.81% to 8,959.56 points [1][6][30] - Among the primary sectors, 8 sectors saw gains while 3 sectors experienced losses. The energy, materials, and industrial sectors had the highest increases, rising by 3.65%, 2.27%, and 1.03% respectively. Conversely, the consumer discretionary, consumer staples, and communication services sectors faced the largest declines, dropping by 1.86%, 1.50%, and 0.13% respectively [1][7][30] Market Liquidity - Due to the Spring Festival holiday, the Hong Kong stock market only operated for half a day on February 16, with a trading volume of HKD 850.56 billion. On February 20, the trading volume was HKD 1,654.61 billion, which is lower than the previous week's average daily trading volume of HKD 2,406.43 billion. The short-selling amount was HKD 237.27 billion, accounting for 14.43%, significantly higher than the previous week's average of 12.56% [2][13][15] Valuation and Risk Premium - As of February 20, 2026, the PE and PB ratios of the Hang Seng Index were 12.09 times and 1.23 times, respectively, placing them at the 79% and 55% percentiles since 2010. The Hang Seng Tech Index had PE and PB ratios of 21.51 times and 2.83 times, respectively, at the 18% and 49% percentiles since 2010 [3][17][22] - The risk premium of the Hang Seng Index was calculated at 4.19%, which is at the 5% percentile since 2010, while the risk premium based on the 10-year Chinese government bond yield was 6.48%, at the 42% percentile since 2010 [3][19][21] Investment Outlook - The geopolitical risks in the Middle East are rising, which may lead to increased volatility in energy and precious metals sectors. The U.S. is exerting pressure on Iran, with potential military actions being considered [4][9][30] - The consumer sector is currently valued relatively low, and with increasing consumer promotion policies, there is potential for growth in this sector [4][30] - The technology sector remains a long-term investment focus, with reduced valuation pressure following recent corrections, and is expected to rebound due to accelerated AI model updates and applications [4][30]

Core Viewpoint - The article discusses the narrowing of the AH premium, highlighting the significant reduction in the discount rate for companies listed in both A-shares and H-shares, particularly noting Dongpeng Beverage's recent listing as having the second-lowest discount rate since 2015 [1][4]. Group 1: AH Premium Dynamics - Dongpeng Beverage's H-share discount rate at 14% is significantly lower than the average of approximately 33% since 2015 [1]. - The overall AH premium index has decreased from a near ten-year high of 161.36 points in February 2024 to 119.44 points by February 2026, returning to levels seen in 2019 [1]. - The narrowing of the AH premium is attributed to improved liquidity in the Hong Kong market, driven by increased participation from southbound funds, a weak dollar environment, and improved profitability in Hong Kong stocks [3][4]. Group 2: Southbound Fund Influence - Southbound funds have become a stabilizing force in narrowing the AH premium, with their market participation exceeding 30% in August 2025 [4]. - In 2025, net inflows from southbound funds reached a record high of 1.4 trillion HKD, with over 120 billion HKD net inflows recorded by February 2026 [4]. - The influx of southbound funds has improved liquidity in the Hong Kong market, reducing the liquidity gap between A-shares and H-shares [4]. Group 3: Valuation Disparities - Some leading companies have experienced a phenomenon where H-share prices exceed A-share prices, known as "premium inversion," with notable examples including CATL and China Merchants Bank [5][6]. - The preference of foreign investors for globally competitive stocks leads to higher valuations for certain companies, impacting the AH premium [6]. - The valuation divergence between large-cap leading stocks and smaller-cap stocks reflects a "Matthew Effect," where larger companies attract more investment and liquidity [7][10]. Group 4: Market Structure Changes - The article notes that the AH premium is influenced by sector-specific dynamics, with significant variations observed across industries [10]. - The introduction of new listing rules allowing growth companies to list in Hong Kong may further alter the perception of AH premiums [11]. - The potential expansion of the dual-counter model allowing mainland investors to trade Hong Kong stocks in RMB could further narrow the valuation discount between A-shares and H-shares [11].

Group 1 - The core conclusion indicates that in Q4 2025, the allocation of Hong Kong stocks by actively managed equity public funds has decreased, with a decline in the proportion of funds overweighting Hong Kong stocks [1][10] - The total size of actively managed equity public funds eligible to invest in Hong Kong stocks in Q4 2025 is 20,356 billion, accounting for 52.2% of the total actively managed equity fund size, down from 52.4% in Q3 2025 [10] - The market value of Hong Kong heavy stocks held by actively managed equity public funds in Q4 2025 is 3,121 billion, which is a decrease from 3,950 billion in Q3 2025 [10][11] Group 2 - In terms of industry allocation, actively managed equity public funds have increased their exposure to cyclical financial sectors while reducing exposure to technology and consumer sectors in Q4 2025 [2][19] - The sectors with increased allocation include non-ferrous metals (6.8%, up 2.3 percentage points), non-bank financials (5.1%, up 3.2 percentage points), and oil and petrochemicals (3.5%, up 2.1 percentage points) [19][26] - The sectors with reduced allocation include consumer discretionary retail (11.0%, down 2.2 percentage points), hardware equipment (3.0%, down 2.0 percentage points), and semiconductors (7.6%, down 2.0 percentage points) [19][26] Group 3 - The concentration of the top ten heavy stocks held by actively managed equity public funds has decreased, with their combined holding percentage in Q4 2025 being 49.7%, down from 54.0% in Q3 2025 [3][28] - The top three heavy stocks remain consistent with Q3 2025, including Tencent Holdings (holding size of 578 billion, accounting for 18.5%), Alibaba (310 billion, 10.0%), and SMIC (187 billion, 6.0%) [3][28]

Core Insights - The report predicts that 45 stocks are likely to qualify for the Hong Kong Stock Connect in March 2026, following the review of the Hang Seng Index series on February 13, 2026 [3] - The report highlights that companies listed under the A+H structure can enter the Stock Connect more quickly, unaffected by the timing of the Hang Seng Index adjustments [3] Selection Criteria - The selection criteria for the Hang Seng Composite Index include two main conditions: market capitalization and trading volume. Only securities in the top 95% by average daily market capitalization over the past 12 months qualify for further volume criteria selection [5] - For new entrants, the market capitalization requirement is slightly higher at 94%, while the threshold for stocks being removed is relaxed to 96% [5] - The report estimates that the minimum average market capitalization requirement for inclusion has risen to approximately HKD 9.2 billion due to strong market performance over the past three quarters [5] Potential Adjustments - The report lists potential stocks for inclusion in the Hong Kong Stock Connect, including JD Industrial (HKD 37.31 billion), Innovation Industry (HKD 36.71 billion), and East Asia Bank (HKD 31.31 billion) [6] - It also identifies 22 stocks that may be removed from the Stock Connect, with the lowest average market capitalization among these being HKD 5.08 billion [6] - The report notes that existing investors can choose to hold or sell stocks that are removed from the Stock Connect, but cannot buy more until the stocks are re-included [5][6] Companies Under Review - The report identifies five companies currently under review for inclusion in the Stock Connect after their observation period, including DJI Technology (market cap HKD 42.79 billion) and Hesai Technology (market cap HKD 34.23 billion) [7]

Group 1 - Since September 2024, the proportion of southbound capital in transaction volume has rapidly increased to 20%-30%, nearly doubling compared to before 2024, indicating a significant shift in market dynamics [3][8] - Historical reviews of two rounds of competition for pricing power in the Hong Kong stock market occurred in 2016-2017 and 2020-2021, typically initiated by policy optimizations and inflows of incremental capital [15][28] - The current southbound capital inflow is characterized by a higher proportion of medium to long-term funds, with insurance capital making 41 stakes in 2025, 35 of which were in H-shares, marking a record high in the past decade [3][31] Group 2 - The industries where southbound capital and Chinese capital have pricing power include semiconductors and dividend-paying sectors, while industries lacking pricing power include internet, hardware, software services, home appliances, and media [3][36] - The top five industries by southbound capital holdings include coal (41.8%), semiconductors (32.7%), environmental protection (24.5%), oil and petrochemicals (24.1%), and pharmaceutical biology (20.5%) [37] - The active management public funds have a low preference for Hong Kong stocks, with significant holdings concentrated in AI-related CSP giants, electronics, and innovative pharmaceuticals [46] Group 3 - The current sentiment in the Hong Kong stock market has fully reflected negative factors such as US-China trade friction and the high unlock peak at the end of last year, suggesting potential upward investment opportunities if liquidity pressure eases [53][54] - The spring rally in the Hong Kong stock market has a high probability of success, with southbound capital and foreign capital expected to net inflow at the beginning of the year, driven by the demand for core Chinese assets [53][54] - The pricing power of southbound capital is rapidly increasing, with expectations of a potential upward beta in the Hong Kong stock market at the beginning of the year [3][53]

Group 1 - The report from Galaxy Securities indicates that the expectation for a short-term interest rate cut by the Federal Reserve has decreased, and global geopolitical uncertainties are increasing, leading to a forecast of narrow fluctuations in the Hong Kong stock market [1] - The technology sector is highlighted as a long-term investment focus, benefiting from multiple positive factors such as price increases in the supply chain, domestic substitution, and accelerated AI applications [1] - The consumer sector is expected to continue benefiting from policy support, with future attention needed on the implementation of policies and improvements in consumer data [1] Group 2 - In the past week, the Hong Kong stock market showed strong performance, with the Hang Seng Index rising by 2.34%, the Hang Seng Tech Index by 2.37%, and the Hang Seng China Enterprises Index by 1.90% [2] - Among the primary industries, nine sectors increased while two decreased, with materials, consumer staples, and information technology leading the gains at 4.31%, 3.91%, and 3.60% respectively [2] - The average daily trading volume on the Hong Kong Stock Exchange was HKD 301.69 billion, an increase of HKD 28.58 billion from the previous week [2] Group 3 - As of January 16, 2026, the PE and PB ratios of the Hang Seng Index were 12.20 times and 1.24 times, respectively, reflecting increases of 0.44% and 0.52% from the previous week [3] - The risk premium for the Hang Seng Index is at 3.95%, which is significantly below the three-year rolling average, indicating a low-risk appetite among investors [3] - The premium index for the Hong Kong-Shanghai Stock Connect has decreased to 120.43, placing it at the 17th percentile level since 2014 [3]

Core Insights - The report predicts an upcoming adjustment to the Hong Kong Stock Connect list in March 2026, with the announcement expected on February 20, 2026, and implementation on March 6, 2026 [1][6]. Group 1: Event Description - The adjustment period for the Hang Seng Composite Index ended on December 31, 2025, and the new list of stocks for the Hong Kong Stock Connect will be released shortly [6][7]. Group 2: Potential Stocks for Inclusion - A total of 47 stocks are expected to meet the criteria for inclusion in the Hong Kong Stock Connect. The pharmaceutical and biotechnology sector has a significant representation among these potential stocks, including names such as: - **Pharmaceutical and Biotechnology**: 英矽智能, 中慧生物-B, 宝济药业-B, 派格生物医药-B, 劲方医药-B, 轩竹生物-B, 康臣药业, 科济药业-B, 海西新药, 长风药业, 维立志博-B, 林清轩, 歌礼制药-B [7]. - **Software Services**: 经纬天地, 希迪智驾, 卓越睿新, 诺比侃, 赤子城科技, 量化派, 迅策, 聚水潭, 果下科技, 五一视界, HASHKEY HLDGS, 卧安机器人, 滴普科技 [7]. - **Non-Bank Financials**: OSL Group, 耀才证券金融, 轻松健康, 国富量子 [7]. - Other sectors include metals, hardware, banking, automotive, consumer retail, household goods, appliances, machinery, defense, industrial trade, utilities, and medical devices [7]. Group 3: Performance Expectations - Stocks that are about to be included in the Hong Kong Stock Connect are expected to perform strongly. Historical backtesting shows that stocks included in the Connect tend to exhibit significant excess returns before and after their inclusion, particularly with the anticipated continued inflow of southbound capital [8].