China Securities Co., Ltd.: Hong Kong stock market welcomes the final trading window of the year.

China Securities Co., Ltd. released a research report stating that after experiencing a unilateral rise in September, Hong Kong stocks have gone through a volatile adjustment since October due to the repeated impact of overseas macroeconomic expectations. Currently, both the Hong Kong and mainland Chinese markets are synchronously completing a mid-term adjustment. Some high-quality assets in the Hong Kong stock market have re-entered the high cost-effective range. With continuous investment from Northbound funds, profit expectations recovery, and the resonance of improving domestic and international macroeconomic environments by the end of the year, Hong Kong stocks are entering a year-end trading window that cannot be ignored. Key points from China Securities Co., Ltd. are as follows: Three main factors have contributed to the adjustment of Hong Kong stocks in the past three months. 1) The suppression of market risk appetite due to the US-China rare earth dispute marking the beginning of US-China relations games. 2) Repeated overseas liquidity expectations: Market expectations for the pace of the US Federal Reserve's interest rate cuts have fluctuated from optimistic to cautious, leading to a temporary strengthening of the US dollar index. 3) Style changes and adjustments in "crowdedness": In the third quarter, the market was highly concentrated in the AI-led technology sector. In the fourth quarter, funds shifted to high certainty sectors like dividends due to profit-taking and risk aversion. Additionally, markets both domestically and internationally are re-evaluating the sustainability and returns of capital expenditure in AI and other technology sectors. From a long-term perspective, Hong Kong stocks are in the middle stage of a bull market, with the liquidity cycle rising consistently since the middle of 2023 following interest rate cuts by seven major central banks overseas. Valuation levels have reached the upper middle percentile after continuous recovery. The profit cycle has just started to rise from the bottom, but the momentum of economic recovery remains moderate, resulting in a relatively slow pace of profit recovery. Multiple factors have opened up a mid-term trading window for Hong Kong stocks. 1) The market adjustment Hong Kong stocks have experienced has increased safety margins, leaving enough room for a new round of rebound; 2) Net inflows from the southbound funds are still ongoing, and may resonate with the recovery of overseas liquidity expectations, creating potential for both domestic and international liquidity resonance; 3) Valuation recoveries in Hong Kong stocks have mainly focused on sectors tied to economic growth. It may gradually spread with improvements in macroeconomic fundamentals; 4) The new version of the US National Security Strategy did not place China as the top strategic priority. The intensity of US-China confrontation may decrease, coupled with increased domestic policies to boost domestic demand, providing positive stimulus to Hong Kong stocks. In terms of investment strategy: 1) Dividends: With domestic long-term interest rates rising and the beginning of economic recovery trends, the defensive attributes of dividend investments in Hong Kong stocks may weaken. Future strategies should focus on high-quality assets with strong sustainability in dividends, stable profits, and high safety margins in valuation; 2) Growth sectors that experienced deep adjustments due to style changes may lead the market with high profit elasticity as market sentiment improves and macroeconomic uncertainties diminish. Focus on sectors such as the internet, innovative pharmaceuticals, and new consumption.