"Sector Over Index" to Dominate Future Market

Recent trends indicate Hong Kong stocks continue to break upward, yet CICC's report notes the market remains fundamentally sector-driven beneath the seemingly robust index performance.

"The current rally isn't a broad bull market but a structural one, likely to persist," Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, told Beijing Business Today. "As household savings shift toward capital markets, Hong Kong will attract more inflows, maintaining its positive trajectory."

Looking ahead, supply-demand dynamics may diverge:

• Supply-side: Mainland mutual funds held 15.4% of southbound capital in Q2 2025 (vs. 15.3% in Q1), while overseas underweighting widened from -5% to -13%. Southbound inflows may slow to HK$300 billion in H2 as foreign capital seeks alternatives.

• Demand-side: IPOs and placements could stay active, with 199 firms (including 40 A-share companies) queuing for listings as of July 28, signaling further market expansion.
  
  

Growth assets show flat aggregate ROE, reinforcing the "sector over index" approach. While Hong Kong's ROE outperforms A-shares, it’s propelled by select industries—AI applications (gaming, short video, software), robotics, and biotech exhibit long-term potential.

CICC advises that liquidity- and sentiment-driven rallies may exceed fundamental valuations: "Rather than chasing peaks during euphoria, position early in downturns."

A top investment bank MD added that protecting entry costs is critical to outperforming in this rotational, hyper-sectoral market.