According to the latest economic and investment outlook for the third quarter of 2026 released by China CITIC Bank International, Hong Kong stocks have established a valuation foundation for a potential rebound. However, the subsequent market trajectory will hinge on the intensity of mainland macro policy implementation and signals of a reversal in foreign capital flows.

Regarding portfolio allocation, the bank recommends deploying defensive, value-oriented stocks characterized by high dividends and ample free cash flow. Alternatively, investors could position in technology and advanced manufacturing leaders that align with China's "self-sufficiency and controllability" strategic focus and whose valuations have already undergone significant adjustment, aiming to capture opportunities driven by policy catalysts.

Zhang Haoen, Head of Investment for Personal and Business Banking at the bank, stated that the long-term theme of artificial intelligence (AI) remains a core market driver. However, AI and semiconductor-related stocks that saw substantial gains earlier have experienced pullbacks from highs, with some capital flowing into value stocks and other relatively lagging sectors with catalysts, such as finance and healthcare.

Looking ahead to the third quarter, Zhang Haoen suggested investors should focus on key risks including the sustainability of corporate capital expenditure, persistent inflation, and interest rate outlooks. It is advisable to moderately increase allocations to defensive, high-dividend, or thematically-driven value sectors, while avoiding over-concentration in single AI concept stocks to reduce overall portfolio volatility.

The bank's Chief Economist, Ding Meng, noted that the Middle East situation remains a focal point for the market. The monetary policy stance of Federal Reserve Chair Wash is more hawkish than previously anticipated, increasing the probability of a US interest rate hike next year, which will impact global funding costs and risk appetite.

Against the backdrop of a potential US rate hike in 2027 and equity market corrections, the bank anticipates a roughly 5% correction in Hong Kong residential property prices in the second half of 2026, forecasting a full-year price increase of approximately 5%.