CITIC SEC: A-share earnings growth has stronger fundamental support; Hong Kong stocks offer more potential recovery opportunities.

CITIC SEC released a research report stating that short-term linkage between the A-share and Hong Kong stock markets is continuously strengthening, but there remain differences in style, sector performance, and earnings cycles. A-share earnings growth already has stronger fundamental support, but is mainly concentrated in a few areas; Hong Kong stocks offer more potential earnings recovery opportunities. The preference is to allocate to A-share growth names with fundamental support, while also allocating to low-volatility and value styles to enhance portfolio defensiveness, and to selectively capture recovery opportunities in Hong Kong's financials, healthcare, and consumer sectors. CITIC SEC's main views are as follows: Style: Cross-market correlation is rising, but style preferences in the two markets still differ. In the first three quarters of 2026, A-shares had more factors delivering positive returns, with low volatility, growth, momentum, and profitability factors leading; Hong Kong stocks were dominated by profitability, value, and large-cap styles. In addition, the momentum factor in both markets peaked at the end of June and reversed sharply in the third quarter. Overall, since 2026, cross-market correlation of volatility and momentum factors has increased, strengthening short-term A/H linkage, but the two markets' respective medium-term style preferences still differ. Sectors: A/H market linkage is strengthening, but differentiated opportunities remain. By market, in the third quarter, A-share consumer and healthcare, financials, and cyclical sectors recovered from the doldrums in the first half, and the range of sectors with improved returns expanded markedly; in Hong Kong stocks, returns in manufacturing and technology turned from positive to negative, while financials and infrastructure & property sectors led. Comparing the A/H markets, sector linkage has strengthened, but leading sectors and return magnitudes still differ, and cross-market relative value opportunities remain, especially in consumer and some technology sectors. A-share earnings growth has stronger fundamental support, while Hong Kong stocks have more potential recovery opportunities. Areas with stronger A-share earnings growth are mainly concentrated in technology, some advanced manufacturing, and mid-cap stocks; overall recovery in Hong Kong stocks relies more on an earnings inflection in the second half. Based on the differences in the two markets' earnings cycles, the preference is to allocate to A-share growth names with fundamental support, while selectively capturing recovery opportunities in Hong Kong's financials, healthcare, and consumer sectors. A-shares and Hong Kong stocks should be positioned separately; the same China asset allocation strategy should not be applied to both. For A-shares, it is recommended to capture growth opportunities already supported by earnings and to balance portfolio risk with low-volatility and value styles; for Hong Kong stocks, it is recommended to continue allocating to high-profitability stocks and leading financials, while selectively capturing earnings recovery opportunities in healthcare and consumer sectors. Rising A/H correlation means greater attention should be paid to short-term risks brought by common factors; however, leading styles, sector returns, and earnings cycles still differ, and cross-market relative value opportunities remain. Risk factors: Model overfitting risk; risk of sharp market volatility; risk of major changes in macroeconomic and industrial policy; risk that individual stock earnings fail to meet expectations.