[Hong Kong Stock Analysis] Hang Seng Index falls more than 200 points; Everbright Securities: Avoid heavy bets before the long holiday, the mid- to long-term bull market trend remains unchanged; which types of stocks are favored during the earnings season?

Hong Kong stocks softened ahead of the long holiday period. After the Hang Seng Index opened lower by 39 points, its decline widened at one point to more than 200 points, and it tested the 25,000 level. Analysts said that near term sentiment in Hong Kong stocks is affected by the situation in the Middle East, with the outlook still unclear; they suggested that ahead of the long holiday, positions for the short term should be biased toward defense and it is not advisable to place heavy bets.

In a video segment of this newspaper’s program, Guangfa Securities International Securities strategist Wu Lixian said that Hong Kong stocks have recently followed the rebound in overseas markets, but the Hang Seng Index has not yet effectively broken through the top of the short-term downward channel. If it does not break above 25,500 points, the rebound momentum would still be insufficient, and it remains within the downward channel, “but in terms of the medium term for Hong Kong stocks, there is actually a good opportunity.”

He noted that looking at the medium to long term, since August 2024 Hong Kong stocks have maintained a major uptrend. The recent low of the Hang Seng Index was around the 24,200-point level, which has not fallen through the bottom of the uptrend channel (around 24,000 points), indicating clearly strong support. The bull market uptrend has not yet been lost. He also believes that when Hong Kong stocks are below 25,000 points, valuations have returned to the five-year average level, long-term investment value is gradually emerging, and investors can gradually increase allocations to high-Beta stocks after the Middle East situation becomes clearer, such as technology stocks, with Tencent as the preferred choice (00700).

Wu Lixian also said that after this earnings period, he is more bullish on domestic banking stocks. Their earnings performance has been steady, dividend yields are generally above 5 percent, and they are attractive. In addition, domestic banks have a low correlation with the Middle East situation, so they are less affected. He also expects that in 2026, domestic banking stocks will be able to continue maintaining steady growth. Mainland China’s economic growth is expected to be 4.5 percent to 5 percent. In a low interest-rate environment, support for non-interest business is helpful, and the ratio of non-performing loans is also expected to decline further. Domestic banking stocks will be a sector worth paying close attention to at present.

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