Guotai Haitong has released a research report stating that with the US midterm election results finalized, concerns over AI investment returns mounting, and geopolitical risks continuing to cause disturbances, the short-term market may continue to seek "safe-haven assets" within equities. On a structural level, during the fourth quarter, Hong Kong stocks should emphasize the foundational value of high-dividend assets while also selecting flexible targets that may benefit from the expansion of AI application scenarios in third-quarter reports and potential inclusions in the Hang Seng Tech Index following its third-quarter adjustment. The main views of Guotai Haitong are as follows:

Asset Performance

Over the past week, Hong Kong stocks rebounded significantly, with internet, daily consumption, and innovative drugs leading the gains. From a global perspective, major equity assets rebounded notably over the past week, with India's Sensex 30, Hang Seng Tech, and STAR 50 leading. Industry performance across major markets showed strong correlation, with discretionary consumption, daily consumption, and healthcare performing better, while energy, financials, and utilities lagged.

Macro Liquidity

Over the past week, expectations for overseas liquidity tightened. Regarding central bank policy, the recently released US October nonfarm payrolls came in stronger than expected, indicating that the resilience of the US economy remains intact and market expectations for rate hikes have risen somewhat. In terms of rate hike expectations, the market anticipates the Federal Reserve will raise rates once each in December this year and June next year.

Micro Liquidity

1) Inflows: Southbound funds saw net outflows this week, while foreign capital saw net inflows. Over the past week, southbound funds recorded a net outflow of HK$3.2 billion, mainly reducing positions in hardware, pharmaceuticals, and discretionary consumer retail. Foreign capital saw net inflows, with active foreign funds turning to inflows after eight consecutive weeks of net outflows, and international intermediaries mainly increasing positions in non-ferrous metals, hardware, and software. 2) Outflows: Hong Kong IPO activity slowed this week, and industrial capital saw net reductions. There were no new IPO listings in Hong Kong over the past week. Industrial capital in Hong Kong overall recorded a net reduction of HK$24 billion over the past week, compared to a net reduction of HK$16.4 billion the previous week.

Market Sentiment

This week, short-selling sentiment in Hong Kong stocks picked up, and volatility increased. Over the past week, following the conclusion of the US midterm elections, volatility in major equity markets generally widened. In terms of short-selling sentiment, over the past week, short-selling sentiment on the Hang Seng Index declined while short-selling sentiment on the Hang Seng Tech Index rose, with communication services and energy seeing the largest declines in short-selling proportions. Relative to A-shares, the AH premium, trading volume, turnover rate, and risk premium of Hong Kong stocks versus A-shares indicate that Hong Kong stock sentiment is marginally strengthening.

Micro Fundamentals

Recently, earnings expectations for Hong Kong stocks have been revised upward. Hong Kong stocks are about to enter the third-quarter earnings disclosure period. Based on analyst consensus estimates, over the past week, the consensus earnings estimate for the Hang Seng Index's 2026 EPS was revised upward. By sector, earnings expectations for Hong Kong's industrials, financials, and consumer discretionary were revised upward, while consumer staples and real estate & construction saw notable downward revisions.

Valuation Positioning

Hang Seng Tech valuations remain low from a medium-term perspective. As of November 6, 2026, the PE ratios for the Hang Seng Index and Hang Seng Tech Index were 11.2x and 21.7x, respectively, with rolling 3-year historical percentiles of 64% and 43%. Compared with overseas markets, Hang Seng Tech's PE valuation is at the 20.8th percentile over the past 8 years, ranking toward the lower end among mainstream broad-based indices.

Risk Warnings

Escalation of Middle East conflicts beyond expectations, tighter-than-expected Fed tightening, and stronger-than-expected US dollar.