BOCOM INTL: Spillover effects impact global risk appetite, April enters a critical window period for the Hong Kong stock market.

BOCOM INTL released a research report stating that the main disturbance in Hong Kong stocks in March did not come from fundamentals, but from uncertainties in the Middle East geopolitics. The spillover effect impacted global risk preference, and Hong Kong stocks were also under pressure along with emerging markets. In late March, as the U.S. released reserve oil, granted temporary waivers for oil sanctions, and the U.S. and Iran initiated diplomatic contacts through Pakistan, there were signs of a temporary easing in the Middle East situation, leading to a drop in oil prices to around $100 per barrel. If conflicts do not escalate further in April, the accumulated risk premium is expected to gradually dissipate, providing room for market valuation recovery. BOCOM INTL's main points are as follows: Consolidation in Hong Kong stocks in March, with geopolitical uncertainties as the core influencing factor The main disturbance in Hong Kong stocks in March did not come from fundamentals, but from uncertainties in the Middle East geopolitics. With conflicts escalating during the month, Brent crude oil once approached $120 per barrel, and the risk premium for transit through the Strait of Hormuz surged. The spillover effect impacted global risk preference, and Hong Kong stocks were also under pressure along with emerging markets. At the same time, the intensive disclosure of annual reports in March led to performance differentiation, prompting Southbound funds to adopt a quick-in, quick-out style and profit-taking in stages, with a focus on defensive sectors such as energy and banking that offer high dividends. Overall, lacking a stable condition under multiple disturbances in March, the index was under pressure. April marks a crucial window: Expectations of geopolitical cooling and the upcoming summit between China and the U.S. could serve as dual catalysts In late March, with the U.S. releasing strategic oil reserves, granting temporary waivers for oil sanctions, and the U.S. and Iran initiating diplomatic contacts through Pakistan, there were signs of a temporary easing in the Middle East situation, leading to a drop in oil prices near $100 per barrel. If conflicts do not escalate further in April, the accumulated risk premium is expected to gradually dissipate, providing room for market valuation recovery. The summit between China and the U.S. has been put on the agenda, with high-level officials from both sides engaging in pre-negotiations in Paris in mid-March to outline the topics of discussion, which will be a focus of attention for Hong Kong stock market sentiment. Combined with the pressure from annual reports and the lifting of restrictions, there is hope that Hong Kong stocks will transition from a high-volatility fluctuation stage to a phase of stabilization. Sector allocation: Positioned at both ends of the dumbbell, transitioning from defense to balance between offense and defense 1) With the fading of geopolitical uncertainties and expectations for the China-U.S. summit providing dual support, the previously oversold technology sector has potential for mean reversion. Key positions should be taken in top internet platforms with historical low valuations and continued buyback initiatives, focusing on AI applications and smart driving assets with industrial catalysis. 2) Energy and commodities: If Middle East geopolitical uncertainties persist, high oil prices still provide direct profit support to Chinese energy sectors, while gold benefits from global risk aversion and USD credit pressures, maintaining a strategic overweight. If geopolitical uncertainties quickly subside, it is recommended to cut positions in energy stocks and realize premiums. 3) Low dividend-bottom positions: Until external uncertainties are completely dispelled, high-dividend telecom operators, utilities, and banks remain core positions for Southbound funds, continuing to hold as portfolio volatility management tools. However, it is advisable to gradually reduce positions and shift towards more elastic directions once geopolitical risks are clarified.