What To Watch In Hong Kong Stocks After The Holiday? Institutions Recommend Focusing On Two Main Themes

On February 24, market observers noted increased divergence in Hong Kong equities during and after the Lunar New Year holiday. Consumption indicators displayed structural strengths but failed to translate into a broad sector rebound. Huatai Securities advised that short‑term investors should guard against heightened volatility in individual names around index and Stock Connect adjustments, while identifying technology and cyclical consumables as the primary mid‑term allocation themes.

Holiday consumption exhibited several notable structural highlights, yet the consumer sector did not mount a decisive recovery. The 2026 Spring Festival featured a record nine‑day holiday, driving robust demand across travel, entertainment and dining. Over the first twenty days of the Spring Festival travel period, cross‑regional passenger movements were estimated at 5.08 billion, averaging 250 million per day and setting a historical high; daily passenger flows exceeded prior peaks for three consecutive days beginning on the third day of the lunar month. The film box office for the holiday exceeded RMB 4.4 billion by the morning of February 22. Major retail catering enterprises reported average daily sales up 10.6% compared with the two days before the 2025 holiday, and Ministry of Commerce monitoring showed foot traffic and turnover across 78 pedestrian streets rising 23.2% and 33.2% year‑on‑year respectively.

Liquidity conditions remained broadly stable even as sentiment indicators moved into the greed zone. EPFR data through Wednesday showed net foreign inflows into Hong Kong equities of USD 1.02 billion, comprising USD 320 million from active funds and USD 700 million from passive funds. By last Friday the Hong Kong sentiment index had climbed to 70.0, entering the greed range. Historical experience indicates that when this threshold is reached the Hang Seng Index has roughly a 60% probability of declining over the subsequent 21 trading days, with average and median drawdowns of approximately –1.5% and –4.8% respectively. Since the index’s introduction in September, timing strategies based on it have delivered annualized excess returns of 9.8% for long‑only and 19.8% for long‑short approaches.

External liquidity conditions showed limited change. U.S. fourth‑quarter GDP growth was reported below expectations but was largely affected by technical factors such as government shutdowns; on an adjusted basis domestic demand growth remained at 2.4%. Market pricing for Federal Reserve easing remained steady, with roughly two cuts implied for the year, and both the U.S. dollar and Treasury yields exhibited limited volatility. Attention will remain on geopolitical developments, including tensions in Iran, and on progress in tariff negotiations.

The Hang Seng Index Company’s semiannual review has been announced and will take effect after market close on March 6, with formal implementation on March 9. The Hang Seng Index will add Contemporary Amperex Technology, China Molybdenum and Laopu Gold while removing Zhongsheng Group. The Hang Seng China Enterprises Index will include Beike‑W and Horizon Robotics‑W and will remove China Resources Beer and Mengniu Dairy. The Hang Seng Tech Index components remain unchanged. Huatai Securities expects Stock Connect adjustments to add 45 stocks and remove 25. Between January 1 and February 13, the stocks anticipated for inclusion outperformed the Hang Seng Index by an average of 16.2% and a median of 9.9%. Huatai cautions that capital positioning may produce “sell‑the‑news” style volatility around the effective date, and investors should manage the risk of profit‑taking in affected names.

Huatai Securities also highlighted two principal risks. Geopolitical escalation could suppress risk appetite, trigger foreign outflows and sharply increase market volatility, producing outcomes that diverge from the firm’s base view. If market overheating leads to a reduction in policy support, the current upward valuation trend could reverse or trading activity could moderate, likewise causing deviations from the outlook presented.