Hong Kong equities underperformed global markets this week as risk appetite contracted and upward momentum remained weak.

During the week of September 21 to September 25, the Hang Seng Index fell 0.97%, the Hang Seng Tech Index dropped 2.13%, and the Hang Seng China Enterprises Index declined 0.72% to 8,165.78 points.

Among first-tier Hong Kong sectors, only one posted gains: healthcare rose 1.44%, while materials fell 5.84%, industrials dropped 2.53%, discretionary consumption slid 1.90%, daily consumption lost 1.60%, and energy declined 0.95%.

At the second-tier level, corporate services, pharmaceuticals and biologics, software services, medical devices and services, and defense and military industries advanced, while non-ferrous metals, machinery, construction, paper and packaging, and daily consumption retail declined.

On the news front, HKEX Group Chief Executive Officer Chan Yiting said at the HKEX China Opportunities Forum that international cornerstone investors now account for a record-high share of Hong Kong IPOs, with more diversified investor sources and increased long-term capital from the Middle East, Europe and North America.

As of September 16, 108 companies had completed Hong Kong listings, up 77.05% year on year, with IPO proceeds exceeding HK$364.1 billion, a 152.7% increase from HK$144.1 billion in the same period of 2025 and already surpassing full-year 2025 IPO fundraising of HK$286.9 billion.

Meanwhile, humanoid robot companies are increasingly seeking Hong Kong listings, with firms including Jiaozhi Technology, Standard Robots, CROP Robot, Youibot, Chenxing Technology and Benmo Power all having filed.

Finally, overseas leading models triggered a price-cut wave, raising market concerns over software commercialization and gross margins. Anthropic recently launched its new-generation large model Claude Opus 5.5, cutting inference costs by about 40% versus the prior generation. OpenAI also launched lightweight low-price versions of ChatGPT-6, Sol and Luna, with official pricing halved by 50% versus the ChatGPT-5.6 series, further intensifying downstream price competition.

Hong Kong Market Review

Index Performance

During the week of September 21 to September 25, global market risk appetite contracted notably, and Hong Kong stocks underperformed global markets with an overall lack of upward momentum.

Specifically, the Hang Seng Index fell 0.97% to 24,510.09 points, the Hang Seng Tech Index dropped 2.13% to 4,311.78 points, and the Hang Seng China Enterprises Index declined 0.72% to 8,165.78 points.

Among first-tier Hong Kong sectors, one sector rose. Healthcare gained 1.44%, while materials fell 5.84%, industrials dropped 2.53%, discretionary consumption slid 1.90%, daily consumption lost 1.60%, and energy declined 0.95%.

At the second-tier level, corporate services, pharmaceuticals and biologics, software services, medical devices and services, and defense and military industries rose, while non-ferrous metals, machinery, construction, paper and packaging, and daily consumption retail fell.

On the news front, first, HKEX Group CEO Chan Yiting said at the HKEX China Opportunities Forum that international cornerstone investors' share of Hong Kong IPOs has reached a high in recent years, with more diversified investor sources and increased long-term capital from the Middle East, Europe and North America.

As of September 16, 108 companies had completed Hong Kong listings, up 77.05% year on year; IPO proceeds exceeded HK$364.1 billion, up 152.7% from HK$144.1 billion in the same period of 2025, and already exceeded full-year 2025 IPO fundraising of HK$286.9 billion.

Second, humanoid robot companies seeking Hong Kong listings are heating up, with Jiaozhi Technology, Standard Robots, CROP Robot, Youibot, Chenxing Technology, Benmo Power and other related companies all having filed.

Finally, a wave of price cuts by overseas leading models has triggered market concerns about software commercialization and gross margins. Anthropic recently launched its new-generation large model Claude Opus 5.5, with inference call costs reduced by about 40% versus the previous generation. OpenAI also launched lightweight low-price versions of ChatGPT-6, Sol and Luna on the same day, with official pricing cut by 50% versus the ChatGPT-5.6 series, further intensifying downstream price competition.

Fund Flows

From a sentiment perspective, average daily turnover on the HKEX this week was HK$179.699 billion, down HK$22.998 billion week on week. Average daily short-selling value was HK$24.389 billion, down HK$2.208 billion week on week; the daily average short-selling ratio was 14.07%, up 0.86 percentage points week on week.

On liquidity indicators, southbound capital recorded cumulative net inflows of HK$23.113 billion this week, an increase of HK$11.105 billion in net inflows week on week.

At the individual stock level, over the past seven days, southbound capital significantly net bought Zhipu (2513.HK) at HK$6.734 billion, Baidu Group-W (9888.HK) at HK$4.261 billion, Tencent Holdings (0700.HK) at HK$2.293 billion, Hua Hong Semiconductor (1347.HK) at HK$993 million, and YOFC (6869.HK) at HK$737 million. Major net sells included Kingboard Laminates (1888.HK) at HK$953 million, CNOOC (0883.HK) at HK$555 million, and Meituan-W (3690.HK) at HK$524 million.

For the seven days ending September 23, among Chinese concept stocks in Hong Kong, global active foreign equity funds recorded net outflows of US$69 million, while global passive foreign equity funds recorded net inflows of US$59 million, increasing net inflows by US$105 million and decreasing by US$824 million respectively versus the prior week.

For the seven days ending September 23, among local Hong Kong stocks, global funds recorded net inflows of US$199 million, up US$97 million week on week.

At the sector level, global funds mainly flowed into technology (US$16.43 million), infrastructure (US$4.24 million), and pharmaceuticals and biologics (US$3.18 million), while flowing out of financials (US$4.32 million), real estate (US$2.00 million), and utilities (US$1.91 million). Technology increased by US$10.42 million, infrastructure increased by US$4.31 million, pharmaceuticals and biologics decreased by US$0.17 million, energy decreased by US$0.84 million, consumer goods decreased by US$0.97 million, utilities decreased by US$1.12 million, raw materials decreased by US$1.18 million, telecom decreased by US$1.18 million, real estate decreased by US$1.73 million, industrials decreased by US$2.54 million, and financials decreased by US$3.92 million.

Valuation and Risk Premium

As of September 25, 2026, the Hang Seng Index's PE and PB were 10.83 times and 1.14 times, at the 62% and 43% percentiles since 2010, respectively.

The Hang Seng Tech Index's PE and PB were 22.93 times and 2.33 times, at the 33% and 17% percentiles since 2010, respectively.

As of September 25, 2026, the 10-year U.S. Treasury yield rose 16bp from Friday to 5.17%, and the Hang Seng Index's risk premium (1/Hang Seng PE minus 10-year U.S. Treasury yield) was 4.06%, at minus 1.02 standard deviations from the 3-year rolling mean and the 6% percentile since 2010.

As of September 25, 2026, the 10-year China government bond yield fell 0.8bp from Friday to 1.67%, and the Hang Seng Index's risk premium (1/Hang Seng PE minus 10-year China government bond yield) was 7.56%, at minus 0.31 standard deviations from the 3-year rolling mean and the 71% percentile since 2010.

In terms of industry valuation, as of September 25, 2026, first-tier Hong Kong sector valuations were highly divergent. Materials, discretionary consumption, energy, telecom services, information technology, financials, utilities and daily consumption all had PE valuations below the 50th percentile since 2010, at historically low-to-mid levels, while other sectors were above the 50th percentile since 2010.

As of September 25, 2026, energy, telecom, utilities and daily consumption had dividend yields above 5%, while real estate and financials had dividend yields above 4%. Except for telecom, utilities, daily consumption and information technology, all other sectors had percentiles below 70%, making investment in these sectors conducive to stable returns.

As of September 25, 2026, the Hang Seng Stock Connect AH Premium Index rose 1.19 points from Friday to 125.2, at the 32.02% percentile since 2014.

Investment Outlook for the Hong Kong Market

Overseas, first, several Federal Reserve officials recently warned intensively that inflation remains persistently high and the current policy stance may still be insufficient to bring prices back to the 2% target, sharply raising market expectations for an October rate hike. On Thursday, Philadelphia Fed President Anna Paulson explicitly said that if the economy evolves as expected, "moderate further tightening may be necessary." New York Fed President John Williams also said the same day that another rate hike before year-end is "reasonable" and that more effort is needed to lower inflation. Cleveland Fed President Beth Hammack also emphasized the same day that in an environment where inflation has been elevated for a long time, successive external shocks will significantly increase the risk of "inflation expectations becoming unanchored."

Second, the U.S. September composite PMI output index rose to 58.4 from 56.0 in August, a 62-month high and the highest since July 2021. A PMI above 50 indicates expansion in private-sector economic activity. The U.S. September services PMI business activity index rose to 58.7 from 56.5, a 59-month high; the manufacturing output index jumped to 56.7 from 53.1, a 53-month high, showing that the acceleration in economic activity is not concentrated in a single industry.

Third, the global bond selloff intensified. On Thursday, the U.S. Treasury issued US$44 billion of 7-year notes at a winning yield of 5.085%, the highest since the maturity was reintroduced in 2009. The 30-year U.S. Treasury yield rose as much as 7 basis points intraday to 5.47%, the highest since 2004; 5-year and 10-year yields hit more than 19-year highs; and the 20-year yield rose to 5.533%, another high since its reintroduction in 2020.

Domestically, first, the People's Bank of China Monetary Policy Committee held its third-quarter 2026 meeting. The meeting studied the main ideas for monetary policy in the next stage, suggesting leveraging the integrated effects of incremental and existing policies, enhancing policy foresight, flexibility and targeting, and grasping the intensity, pace and timing of policy implementation based on domestic and international economic and financial conditions and financial market operations. The meeting proposed for the first time strengthening financial support for the construction of the "six networks."

Second, Alibaba CEO Wu Yongming said at the Yunqi Conference that customer AI demand is currently very strong and that the company will fully invest in AI infrastructure, targeting more than 20GW of global data center capacity operated by Alibaba Cloud by 2032. Wu revealed that Alibaba plans to train a new-generation AI model with 5 trillion to 10 trillion parameters.

The market needs to reprice a "higher for longer" rate environment, and Hong Kong stocks lack short-term catalysts for a sustained uptrend. Some funds had previously bet on a rebound once the rate hike landed, but the overall tone of the Fed's September meeting was more hawkish than market expectations. The dot plot shows at least one more rate hike is expected this year, and Chair Warsh listed inflation as the main contradiction, sending a clear anti-inflation signal. This means the "bad news exhausted" logic has been broken, and uncertainty has not been eliminated but postponed to the fourth quarter.

On investment strategy, three main lines should be grasped: the main line is likely structural defense and selective offense led by existing foreign capital and local funds. Recommendations include:

(1) Technology sector. Computing hardware and AI infrastructure names with real orders and earnings support may be relatively resilient, while pure-concept names lacking earnings delivery may face greater liquidity discounts. Attention is suggested on optical modules/fiber, PCB, high-speed connectivity, AI servers/complete systems, domestic AI chips and wafer foundry, power/backup power/data center supporting facilities, and progress of major cloud vendors' models/Agents.

(2) Innovative drugs and CXO sector. Foreign capital has recently flowed heavily into pharmaceuticals and biologics, and innovative drugs have recovered after the rate hike landed, requiring careful stock selection and profit-taking discipline.

(3) Low-volatility dividend plays. In an environment of high rates and the absence of southbound capital, the need for defensive allocation rises, with attention suggested on utilities, telecom, energy and financials.

Risk Warnings

Risks include domestic policy intensity and effects falling short of expectations; unstable market sentiment; and intensifying trade frictions.

This article is excerpted from a research report published by China Galaxy Securities Co., Ltd. (ASX: 601881) on September 26, 2026, titled "Galaxy Strategy: Structural Defense Favored, Hong Kong Stocks Await Clearer Rate Signals." Analysts: Yang Chao S0130522030004; Kong Yue S0130525100001.

Rating Standard: Ratings are based on the sector index (or company share price) relative to market performance over 6 to 12 months after the report release date, where the A-share market uses the CSI 300 Index as benchmark, the New Third Board uses the Third Board Component Index (for negotiated transfer targets) or the Third Board Market-Making Index (for market-making transfer targets), the Beijing Stock Exchange uses the BSE 50 Index as benchmark, and the Hong Kong market uses the Hang Seng Index as benchmark.

Sector Ratings: Recommended means relative benchmark index gain of more than 10%; Neutral means relative benchmark index change between -5% and 10%; Avoid means relative benchmark index decline of more than 5%.

Company Ratings: Recommended means relative benchmark index gain of more than 20%; Cautiously Recommended means relative benchmark index gain between 5% and 20%; Neutral means relative benchmark index change between -5% and 5%; Avoid means relative benchmark index decline of more than 5%.