Zhang Yidong, Executive Committee Member, Chief Economist, and Head of Research at Haitong International, expressed strong confidence in Hong Kong stocks, asserting that they offer allocation value comparable to A-shares. He believes that following recent geopolitical tensions, Chinese assets will become increasingly attractive for investment.

In terms of correlation, the linkage between A-shares, Hong Kong stocks, and U.S. equities has weakened significantly in recent years. The correlation peaked between 2018 and 2020, when MSCI included A-shares in its global indices, reaching approximately 80%. Recent data, however, shows that the correlation has dropped to zero, with the Hang Seng High Dividend Yield Index even exhibiting a negative correlation with the S&P 500.

Zhang noted that Hong Kong stocks are increasingly priced by domestic capital, reflecting long-term, domestically driven valuation trends. However, he pointed out one drawback: the internet sector within the Hang Seng Tech Index remains predominantly influenced by foreign capital. As a result, the Hang Seng Tech Index maintains a relatively high correlation with the Nasdaq and S&P 500, indicating that pricing power for these stocks has not yet shifted to Chinese investors. The correlation peaked at around 60% between 2018 and 2020 and remains at a similar level today.

Although some actively managed foreign funds have recently returned to the market, their scale remains limited. Zhang anticipates a significant influx of foreign capital into Chinese assets after the current geopolitical situation stabilizes. He emphasized that the decoupling between Chinese and U.S. markets makes Chinese assets particularly appealing in a volatile global environment, as low correlation enhances wealth preservation. Despite technological decoupling from the U.S., China's technological capabilities continue to strengthen, and its domestic demand and manufacturing advantages remain robust, supporting expectations for foreign capital inflows.

Zhang also addressed recent speculation about Middle Eastern funds actively investing in Hong Kong, noting that such activity has not been significant. During periods of conflict, capital tends to seek safety, and risk-oriented investments are more likely to occur after tensions ease. Nevertheless, Haitong International’s energy team has observed that listed companies in Saudi Arabia and the UAE are keen to engage with Chinese investors and explore opportunities in mainland China, which Zhang views as positive developments.

According to Zhang, the recent volatility in A-shares and Hong Kong stocks is primarily driven by external factors and does not undermine the long-term upward trend of Chinese capital markets. He likened the current adjustment phase to "gathering momentum," suggesting that a temporary pullback may lead to stronger gains later. Both A-shares and Hong Kong stocks are expected to reach new yearly highs in the second half of the year.

Regarding the Hang Seng Tech Index, Zhang believes its composition does not fully reflect China’s economic transformation and advancements in technology. While many high-tech and hard-tech companies have listed in Hong Kong over the past year, they have not been accorded significant weight in the index. He humorously referred to the Hang Seng Tech Index as the "Hang Seng Traditional Internet Consumption Index" and recommended investors treat it as a consumer stock rather than a tech stock in the short term.

Despite this, Zhang considers the current level of the Hang Seng Tech Index attractive for investment. China’s economic recovery has bolstered the fundamentals of traditional internet sectors such as e-commerce, gaming, and advertising. The intense internal competition and inefficiencies that previously affected these sectors have largely subsided.

While maintaining long-term optimism for the Hang Seng Tech Index, Zhang acknowledges limited medium-term momentum. In the short term, he advises investors to approach the index as they would consumer stocks or convertible bonds, suggesting a cautious yet opportunistic stance. He encourages investors to "sow seeds with compassion and tears," managing expectations without selling at a loss under current conditions.

Zhang concluded that selling would only be justified if geopolitical tensions escalate into a global financial crisis by year-end, leading to irrational market declines.