CICC Chief Overseas And Hong Kong Equity Strategist Liu Gang Liquidity Needs Improvement Hang Seng Tech Offers Gradual Left‑Side Allocation Opportunity
Since the start of 2026, the Hang Seng Tech Index, regarded as a core asset, has undergone a pronounced correction, breaching multiple technical support levels. What factors have driven this decline, how have liquidity and capital flows shifted, and has the pullback reached a conclusion? In a recent interview with Securities Times, Liu Gang, Managing Director and Chief Overseas and Hong Kong Equity Strategist at CICC, identified three conditions that could enable Hong Kong equities to outperform other markets once more.
Liu noted that the credit cycle sets the ceiling for overall index performance, while sectoral prosperity determines where structural opportunities emerge. In an environment where the credit cycle is oscillating or temporarily slowing in 2026, capital naturally chases sectors that remain in expansion. If Hong Kong’s distinctive market structure is temporarily out of favor and funding conditions turn adverse, the weakness observed in Hang Seng Tech becomes easier to explain. He highlighted two specific dynamics: Hong Kong equities are particularly sensitive to external liquidity conditions, and the nomination of a relatively hawkish candidate to lead the Federal Reserve has heightened investor concern about tighter global liquidity despite the likelihood of eventual rate cuts; additionally, Hong Kong’s heavier pipeline of IPOs and refinancing, together with A‑share strength diverting southbound flows, has produced a seesaw effect between the two markets.
Regarding valuation, Liu emphasized that Hong Kong’s market composition has shifted since October 2025, with internet technology and innovative pharmaceuticals receding from the spotlight and the market lagging A‑shares and other regions. In February, heavyweight constituents such as Alibaba, Tencent Holdings and Baidu exerted notable drag on the index. Investors have questioned whether AI‑related capital expenditures will translate into commercialized applications and sustainable cash flow, and some market participants have been critical of large promotional payouts aimed at boosting user activity, viewing them as short‑term KPI measures with limited linkage to core AI capability building.
Liu cautioned against two common misconceptions. First, the Hang Seng Tech Index includes companies beyond narrowly defined technology names, such as new‑energy vehicle manufacturers and travel platforms, so it should not be treated as a pure tech basket. Second, simple cross‑market valuation comparisons can be misleading unless one accounts for differences in profitability, liquidity conditions and investor base. While Hong Kong’s absolute valuations are lower than those in the U.S., median PE ratios and net profit margins among leading internet names are broadly consistent, so Hong Kong is not necessarily cheaper on a like‑for‑like basis. In the short term, however, the index’s PE has moved to roughly one standard deviation below its mean and RSI readings indicate potential oversold conditions, creating an attractive entry point for some investors who view the current environment as an opportunity for gradual, left‑side accumulation.
On the outlook for a sustained rebound, Liu argued that 2025’s gains for Hang Seng Tech were largely valuation driven, and further upside at the index level will require earnings recovery rather than reliance on continued multiple expansion. With credit expansion absent in 2026, corporate earnings may not improve markedly, leaving room for structural bright spots instead. CICC’s overseas strategy team projects Hong Kong earnings growth of about 3%–4% in 2026, below 6% in 2025 and trailing A‑shares’ expected 4%–5%. Consequently, Liu suggested that overall index upside may be limited and recommended that investors focus on scarce assets.
Structurally, Hong Kong retains distinctive sectors such as high‑dividend stocks, internet technology, new consumption and innovative pharmaceuticals, which remain relative strengths versus A‑shares. Mid‑term thematic emphasis continues to center on AI and cyclical sectors, aligning with the primary directions of credit expansion. The recently discussed “HALO trade” similarly reflects the intersection of industry trends and cyclical prosperity. For heavy‑asset cyclical beneficiaries and AI hardware, policy support for compute infrastructure, domestic substitution and supply‑chain security tends to translate more directly into A‑share gains, whereas Hong Kong listings are more concentrated on internet and application layers where short‑term monetization paths remain less clear and require additional catalysts. Even so, Hong Kong’s characteristic sectors continue to offer scarce allocation value for southbound investors.
From a funding perspective, Liu observed that Hong Kong’s liquidity backdrop in 2026 is unlikely to surpass 2025 and will probably lag A‑shares. The incremental southbound inflows in 2025 were largely driven by ETFs and trading‑oriented capital such as private funds and retail investors, which are highly sensitive to sentiment swings; absent an outsized market outperformance, replicating those inflows will be challenging. The Federal Reserve is still expected to cut rates, but the appointment of a new chair introduces uncertainty that could perturb Hong Kong equities. Meanwhile, IPO and refinancing activity remains robust, with CICC estimating issuance at about HKD 1.1 trillion in 2026 versus roughly HKD 600 billion in 2025, and the large number of 2025 IPO lock‑ups may exert additional pressure on funding conditions.
Looking forward, Liu concluded that Hong Kong’s opportunity to outpace other markets depends on three factors aligning: a renewed market expectation of Federal Reserve easing, a return of investor focus to Hong Kong’s distinctive sectors, and relative weakness in A‑shares prompting southbound capital to flow back into Hong Kong.
