China Securities Co., Ltd. Overseas Investment Outlook for the second half of 2026: Structural bull market in US stocks continues, Hang Seng Technology patiently awaits AI value reassessment.

China Securities Co., Ltd. released a research report stating that in the first half of 2026, the global macro trend is dominated by supply shocks triggered by the US-Iran conflict, and the market is evolving from "trade stagnation" to "price decline". In the US stock market, there is a battle between AI narratives and stagnation risks, with structural rallies favored over trending rallies. In the Hong Kong stock market, the performance of Hengke may be better than that of the Hang Seng Index. On one hand, the adjustment is more sufficient, and on the other hand, before the arrival of the pro-cyclical market, there is still hope of enjoying AI options. Looking back at the two major directions of Internet investment clues in 2025, one line is companies like Alibaba, Kuaishou, and Baidu that have deduced AI logic individually, and the other line is represented by high-quality subcategories such as health, music, and travel. Looking forward to 2026, on the AI front, both odds and win rates have great appeal. In terms of high-quality subcategories, considering factors such as overall growth and valuation levels, competition landscape, AI replacement of immunity, and regulatory attitudes, the institution believes that second-hand e-commerce, pharmaceutical e-commerce, industrial e-commerce, OTA, and travel leading the way still have high layout value. China Securities Co., Ltd.'s main points are as follows: Domestic macroeconomic outlook: structural reshaping under policy support. Domestic economic growth momentum comes from the resilience of external demand and the structural rebound of domestic demand. The first quarter saw a strong economic start, with exports benefiting from the "grab export" effect and complete industrial chain advantages. Consumption is showing a marginal rebound driven by policies such as "replacing the old with the new," but internal momentum still needs to be strengthened. Investment in infrastructure is accelerating, manufacturing investment is stable, and the real estate sector is still undergoing deep adjustments, although the rate of decline is narrowing. The full-year GDP growth target is expected to be in the range of 4.5%-5%, providing space for structural adjustments. Monetary policy continues to maintain a "moderately accommodative" tone, and the central bank will firmly maintain stable operation of the financial markets. Policy tools (such as reserve requirements, interest rate cuts) are sufficient, but activation requires specific conditions, demonstrating strong strategic determination. In terms of fiscal policy, fiscal and monetary policies work together, with stable growth as the main focus, a deficit ratio maintained at around 4%, and continued efforts in long-term special national bonds and special bonds. Monetary policy will coordinate with fiscal policy to counter external shocks and support the domestic economy. US macroeconomic outlook: "Weak but not collapsing" under the shadow of stagnation. The K-shaped economy is coming to an end, and the job market shows signs of fatigue. The US economy exhibits characteristics of being "weak but not collapsing", providing support for the dollar, but the job market is showing signs of fatigue. Nonfarm employment growth has slowed significantly, and the economy may have entered the late stage of a K-shaped recovery. With the 2026 midterm elections nearing, the political cycle poses a significant disturbance to economic policy. In terms of inflation, geopolitical conflicts are pushing up costs, leading to an upward shift in the inflation center. The US-Iran conflict has led to a sharp rise in Brent crude oil prices, triggering cost-push inflation and complicating the inflation issue in the United States. Core inflation has fallen somewhat but remains sticky, and energy price shocks may interrupt the downward trend, creating a "stagnation-like" pattern. Market expectations for a rapid and substantial rate cut by the Federal Reserve have been significantly revised due to geopolitical conflicts and inflation rebounds. The Fed's March meeting kept the federal funds rate unchanged at 3.50%-3.75%. The Fed is caught between "controlling inflation" and "maintaining growth", with a hawkish policy stance. On the other hand, AI's impact on the US macroeconomy has a double-edged sword effect, boosting productivity but also leading to structural unemployment. On one hand, by boosting total factor productivity to support growth and profits, the core narrative of high valuation in the US stock market; on the other hand, it is impacting the job market, shifting from a slowdown in hiring to risks of layoffs, thereby suppressing overall demand and exacerbating downside economic risks. In the macro environment of "stagnation-like" conditions, global equity markets are under pressure overall. In the US stock market, there is a battle between AI narratives and stagnation risks, with significantly increased stock volatility, and structural rallies are favored over trending rallies. In the Hong Kong stock market, the performance of the Hang Seng Technology Index may be better than that of the Hang Seng Index, with more thorough adjustments and the potential to enjoy AI options before the arrival of the pro-cyclical market. Hong Kong stock market: The performance of the Hang Seng Technology Index may be better than the Hang Seng Index, entering a period of valuation digestion and left-side layout reconstruction under the AI narrative. Since the beginning of the year, the Hong Kong stock market has been impacted by both weak domestic demand and external shocks, with the Hang Seng Technology significantly underperforming the Hang Seng Index. This deviation from the AI industry trend is mainly due to two reasons: first, most of the advances in domestic AI since the beginning of the year have been unrelated to heavyweights like Alibaba and Tencent; and second, the component structure of Hengke is more consumer-oriented than technological, continually facing pressures of insufficient domestic demand and internal competition, as well as the dual impact of regulatory measures and AI disruption fears. The Internet sector currently faces two core suppression logics: first, a temporary mismatch between AI investment and profit realization, with significant capital expenditures among major companies but uncertain commercialization; second, continued pressure from internal competition, with the ongoing battle among food delivery platforms suppressing the profit release and valuation recovery of leading players. After sufficient adjustment, the attractiveness of the Heng Seng Technology Index's valuation has become significantly evident, with one of the lowest valuation percentiles among major global tech broad-based indexes, providing a high margin of safety for medium- to long-term investors. The systemic repair of the Heng Seng Technology Index awaits a resonance of the three signals of "liquidity inflection point, AI commercialization verification, and competition structure easing." However, the starting point of the AI technology cycle, excellent organizational structure and talent advantages, as well as the high elasticity of the TMT industry and the alpha attributes of large consumption, together form the core logic for its long-term upside. Looking medium to long term, as overseas economies further slide into recession and external demand pressures continue, domestic demand policies are expected to further strengthen under the catalysis of policies, with Heng Seng Technology positioned as one of the core assets for the pro-cyclical market, likely to benefit from a systematic revaluation. Looking back at 2025, the main directions of Internet investment clues were divided into two major directions, one focusing on individual companies like Alibaba, Kuaishou, Baidu that have deduced AI logic individually, and the other focusing on high-quality subcategories represented by health, music, and travel. Looking forward to 2026, on the AI front, both odds and win rates have great appeal. In terms of high-quality subcategories, considering factors such as overall growth and valuation levels, competition landscape, AI replacement of immunity, and regulatory attitudes, the institution believes that second-hand e-commerce, pharmaceutical e-commerce, industrial e-commerce, OTA, and travel leading the way still have high layout value. E-commerce & Local Life: Competition is expected to gradually trend towards rationality. Faced with the escalating "internal competition" among food delivery platforms since 2025, regulatory authorities have not adopted strong measures, but instead have taken a precise window guidance approach through multiple rounds of discussions, releasing national standards, organizing administrative guidance meetings, etc. As we enter 2026, normal market competition is expected to continue in the short term, with further easing of the industry landscape in the second half of the year requiring resona... (More)