Anti‑Stagflation Theme Guides Hong Kong Allocation Institutions Identify Power And Energy Assets As Short‑Term Core

The Hong Kong equity market continues to trade in a volatile consolidation phase. Huatai Securities’ latest strategy report offers a systematic review of market fundamentals, capital flows, sentiment indicators and allocation logic to provide investors with a multi‑dimensional reference.

On fundamentals, Bloomberg consensus forecasts for non‑financial Hong Kong equities over the next twelve months were revised upward by 0.3% for both earnings and revenue in the past week, and by 0.7% and 0.4% respectively over the past month. Innovative pharmaceuticals stand out as a bright spot while internet names remain under pressure. Over both the past week and month, sectors with the largest upward revisions to earnings expectations included pharmaceuticals (2.5%/3.3%), real estate (1.6%/1.1%) and oil & petrochemicals (1.4%/1.0%). Electrical equipment and coal also recorded notable positive revisions, with weekly and four‑week adjustments of 1.0%/2.8% and 0.6%/0.8% respectively. Overall, analyst revisions to fundamentals have shown a generally constructive pattern.

Regarding capital flows, EPFR data through last Wednesday indicate foreign net inflows into Hong Kong equities of USD 1.82 billion, a modest deceleration from the prior week’s USD 2.42 billion. Short‑selling positions rose by 0.1 percentage point to 2.44%, with no clear sign of retreat; the extent of short covering associated with Friday’s rebound will require confirmation from next week’s data. Southbound flows shifted to net outflows last week, with HKD 8.1 billion leaving Hong Kong equities compared with HKD 6.7 billion of inflows the previous week. Net inflows were concentrated in oil & petrochemicals, media, banks, electronics and transportation, while retail trade, non‑bank financials, pharmaceuticals, non‑ferrous metals and consumer services experienced net outflows.

Sentiment indicators have cooled, with the composite Hong Kong sentiment index at 57.6, still above its central level but declining across subcomponents. Southbound sentiment measures (inflow intensity, net buy strength, AH premium) fell from 80/75/100 to 64/63/83. Foreign sentiment metrics (basis and put/call short/long ratios) moved from 33/79 to 0/69, and implied volatility eased from 44 to 37. Technically, the Hang Seng Index’s recent correction magnitude is close to its historical average of about 5%, although the duration remains shorter than the typical 21 trading days. Historical patterns suggest a left‑side accumulation window may begin to emerge in mid to late March. The timing strategy built on this sentiment index, operating since September 2025, has produced cumulative excess returns of 8.9% for a long‑only approach and 16.7% for a long‑short approach, with annualized excess returns of 16.6% and 34.8%, respectively, supporting the strategy’s continued effectiveness.

In terms of allocation, the report recommends focusing on anti‑stagflation themes and optimizing defensive positioning. Near‑term geopolitical tensions have pushed energy prices higher and heightened stagflation concerns, prompting a recommendation to increase exposure to power operators that exhibit strong anti‑stagflation characteristics, sit near the trough of their operating cycles and stand to benefit from overseas demand tied to the “Token economy.” Hong Kong‑listed power names are noted as offering relatively attractive valuations versus A‑share peers. Attention is also warranted for oil and gas leaders and coal‑power integrated enterprises. Over the medium term, the investment case for storage‑oriented semiconductor hardware within the AI supply chain and for power equipment providers with export capabilities remains intact; any macro‑driven pullbacks could present accumulation opportunities. Specialty consumer segments showing marginal improvement offer alpha potential and can enhance portfolio defensive resilience. Non‑ferrous metals linked to the power chain, insurance and high‑quality Hong Kong local assets are recommended as core holdings.