Citigroup: Lowering the Hang Seng Index target to 29600 points by the end of this year, is more optimistic about A shares than H shares, and raising the insurance sector rating to "hold".

Citi Group's Chinese stock strategist Liu Xianda stated that the institution has lowered its year-end Hang Seng Index target from the earlier 30,000 points to 29,600 points. The target for the first half of 2027 is set at 30,500 points, with the expected earnings growth rate per share for the Hang Seng Index being adjusted down by 0.4 percentage points to 11.9% in 2027. Consequently, the institution has decreased its index target for the end of 2026 by 1.3%. Liu indicated that the institution has upgraded its rating for the insurance sector from "neutral" to "buy," expecting more investment returns from the stock market and predicting an increase in bank deposits flowing into insurance products. Citi maintains a "buy" rating for the technology sector, increasing the MSCI China sector's weight by 1.5% to 12%. Strong profit growth is expected in sub-sectors such as semiconductors and communication equipment, as they are beneficiaries of capital expenditures. He mentioned that the institution maintains a "buy" rating for the basic materials sector; due to a slowdown in profit growth in the internet sector, the weight of this sector has been reduced by 5.3% to 36.5%. However, Citi still maintains its "buy" rating for this sector mainly due to its lower valuation. For the financial sector, Citi has increased its weight by 1.6% to 12.1%, primarily due to the institution's optimistic outlook on brokerage firms, considering Hong Kong's strong IPO pipeline and expected high trading volumes in main stock markets. Additionally, Citi revised its year-end Shanghai and Shenzhen 300 Index target from the previous 5100 points to 5600 points, with expectations for the first half of 2027 to reach 5700 points. Liu Xianda expressed a preference for A-shares over H-shares, given the higher weight of technology stocks. He is bullish on the technology sector in the second half of 2026, expecting strong growth in profits driven by robust capital expenditures, which will be a significant driver of growth. Citi is more inclined towards indices with a higher proportion of technology stocks. The technology sector accounts for 15.7% of the Shanghai and Shenzhen 300 Index, significantly higher than the 3.7% in the Hang Seng Index. Therefore, Citi anticipates that the performance of the Shanghai and Shenzhen 300 Index in the second half of 2026 will outperform the Hang Seng Index. However, considering that many A-share technology stocks and high-growth-related companies are actively seeking to list on H-shares, the gap between the two indices may narrow in the next 12 months. Regarding the China Securities Regulatory Commission's crackdown on overseas securities firms' illegal cross-border operations, he pointed out that the recent actions against three securities firms by mainland authorities were not unexpected. Over the past five years, there have been regulations in place, and the current enforcement is just a formal implementation; the policy principles have not changed, and this does not affect Citi's positive view on the brokerage sector. In the preferred buy list for H-shares, companies include Tencent (00700), AIA (01299), Jiangsu Hengrui Pharmaceuticals (01276), MMG (01208), Ctrip Group (09961), CICC (03908), Montage Technology (06809), and ASMPT (00522). He mentioned that Citi replaced two hardware companies with two semiconductor companies, namely Montage Technology and ASMPT, as semiconductors are the institution's most favored sub-sector. Zijin Mining Group (02899) was replaced by MMG, with expectations for greater upside potential in the latter after outperforming Zijin Mining Group. In the preferred sell list for H-shares, companies include HUANENG POWER (00902), CHINA RES POWER (00836), HUISHANG BANK (03698), BYD ELECTRONIC (00285), SJM HOLDINGS (00880), CHERVON (02285), and CR MEDICAL (01515).