How To Choose Among U.S., A‑Share, And Hong Kong Markets In 2026? Institutions Recommend Avoiding Hong Kong’s Shortcomings And Focusing On AI, Dividends, And Cyclicals

Since early 2025, the U.S., A‑share and Hong Kong markets have exhibited a pattern of quarterly rotation, characterized by alternating leadership and cross‑market linkages. In the first quarter, DeepSeek led a revaluation of Chinese assets with Hengke at the forefront; the second quarter saw U.S. equities gain from AI leaders’ stronger‑than‑expected results and rising capital expenditure while Hong Kong recorded advances in new consumption and innovative pharmaceuticals, although Hengke did not reclaim its March highs; the third quarter brought renewed domestic capital inflows and a technology‑driven rebound that allowed A‑shares to catch up; and in September, looser trading conditions and a strengthened AI narrative among Chinese internet leaders briefly propelled Hong Kong to outperform.

From late November, however, Hong Kong has underperformed relative to the other two markets, suffering larger declines and lagging the recovery in U.S. and A‑share indices. The Hang Seng China Enterprises Index fell 2.2% and Hang Seng Tech declined 0.7%, while the CSI 300 rose 0.5% and the S&P 500 and Nasdaq gained 5.5% and 6.9% respectively; Hong Kong only began to rebound last Friday. This divergence raises two questions: why has Hong Kong been the weakest of the three markets recently, and how should investors allocate across the U.S., A‑shares and Hong Kong in 2026?

Hong Kong’s relative weakness reflects its heightened sensitivity to liquidity and the market’s structural exposure to fundamentals. As an offshore market, Hong Kong reacts more acutely to shifts in funding conditions, and recent liquidity has been relatively constrained. Southbound inflows have slowed since late November, with the 10‑day moving average of net inflows falling from about HKD 7 billion per day to under HKD 1 billion and even turning negative last week. Regulatory guidance issued on December 6 regarding fund manager performance assessment—emphasizing investment returns and stricter benchmark constraints—has raised concerns about potential portfolio rebalancing, given that mainland active equity funds were materially overweight Hong Kong stocks at the end of the third quarter.

External liquidity has also been less supportive. Active foreign capital has shown net outflows while U.S. Treasury yields rose after the Federal Reserve’s hawkish December rate cut. EPFR data indicate recent weakness in foreign active flows into Hong Kong and ADRs, while passive inflows have slowed. Concerns about policy shifts at other central banks and the rise in long‑term U.S. yields have further reduced external support for Hong Kong equities.

At the same time, Hong Kong’s IPO pipeline has remained active, creating additional funding demand. By the end of November, cumulative IPO proceeds in Hong Kong reached about HKD 260 billion, the highest among global exchanges. New listings continued into November, raising over HKD 50 billion, and many companies that listed earlier in the year are approaching six‑month lock‑up expirations. Potential December unlocks amounting to roughly HKD 120 billion add to near‑term supply pressure.

Taken together, these liquidity dynamics are important, but the more decisive factor is the relative weakness of underlying fundamentals and the absence of strong catalysts. Hong Kong’s sector composition—where technology exposure is concentrated in internet applications rather than hardware, consumption is skewed toward discretionary new‑consumption names, and cyclical weights are smaller than in A‑shares—means the market is more dependent on demand‑side and sentiment catalysts. Dividend‑oriented sectors provide defensive characteristics but limited valuation elasticity. When fundamentals fail to produce positive surprises, concerns about AI monetization and weak consumption are amplified, and Hong Kong’s structural shortfalls become more pronounced.

Historically, Hong Kong has tended to outperform when fundamentals improve and liquidity is abundant or when clear, scarce structural themes favor its market. Since 2010, periods in which Hong Kong outperformed A‑shares and global peers have typically coincided with accelerated southbound inflows, easing external liquidity, domestic fundamental stabilization, or the emergence of distinct structural opportunities—examples include internet platform revaluation phases, high‑dividend regimes, and rotations into AI, new consumption and innovative pharmaceuticals. Conversely, when domestic liquidity and structural drivers favor onshore markets, A‑shares have outperformed.

For 2026, institutional projections suggest differentiated upside across markets, but any allocation decision should weigh liquidity, fundamentals and structural opportunity. U.S. equities are expected to benefit from ample liquidity in the first half of the year, supported by the Federal Reserve’s balance‑sheet expansion focused on short‑dated Treasuries and the potential for a more dovish leadership stance. A‑shares are likely to remain supported by domestic liquidity and policy signals that encourage capital market participation. Hong Kong’s performance will depend on external spillovers and whether the market can present compelling structural opportunities to attract both foreign and southbound capital.

On fundamentals, the U.S. credit cycle is expected to recover and may even overheat under certain scenarios, supporting higher earnings growth. China’s credit cycle, after a year of repair, faces renewed structural headwinds and may experience volatility or weakening unless policy stimulus intensifies. Under these assumptions, U.S. earnings growth is projected to outpace China’s: U.S. corporate profits could expand in the mid‑teens, A‑share earnings growth is forecast at roughly 4–5% overall (with non‑financials higher), and Hong Kong earnings growth is expected to be modestly lower at about 3%, with non‑financials growing faster than financials.

Structurally, AI remains the dominant thematic consideration. Hardware exposure offers clearer short‑term visibility and is more prevalent in A‑shares, while Hong Kong’s AI exposure is concentrated in application‑level internet companies whose monetization paths are less certain. Dividend strategies favor Hong Kong, where yields—particularly in the banking sector—are higher than onshore equivalents and can provide a defensive allocation amid credit‑cycle uncertainty. Cyclical opportunities are likely to be driven by U.S. fiscal and monetary impulses and a recovery in global demand, which would benefit resource and industrial sectors more represented in A‑shares than in Hong Kong. Consumption, given the current credit‑cycle dynamics and muted income expectations, appears less likely to deliver a high‑probability structural trade in the near term.

In conclusion, institutions recommend anchoring portfolios with dividend exposure—largely available in Hong Kong—and selective AI exposure, favoring A‑share hardware names for near‑term visibility while monitoring application‑level catalysts in Hong Kong. Tactical attention should be paid to cyclical triggers in the first quarter, where U.S. fiscal and monetary developments could create trading opportunities, and to liquidity signals that determine whether Hong Kong can attract sufficient external and southbound capital to overcome its structural constraints.