CICC: What has changed in the Hong Kong stock market two years after 9/24?

CICC released a research report stating that Hang Seng Tech still exhibits prominent odds but insufficient win rates. To truly open up upside space, it needs to recreate a "924 moment" or a "DeepSeek moment." If the household credit impulse repairs, Hang Seng Tech's elasticity could even be better than consumption itself. At the allocation level, continue to follow the "odds gaming + structural stock selection" approach: tech needs to wait for industry catalysts (Q3 earnings and the Anthropic IPO catalyst), cyclicals depend on easing rate hike concerns (CPI and the late-October FOMC); domestic demand still needs stronger fiscal signals (year-end Central Economic Work Conference); if none of the above materialize, then one can only hedge with dividends. CICC's latest updated sector-level odds and win rates show that the recently top-ranked sectors are energy, transportation, insurance, autos and components, raw materials, and pharmaceuticals. Although global markets have shown massive divergence and volatility year-to-date, Hong Kong stocksespecially Hang Seng Techstand out as particularly "eye-catching" for their continued underperformance, with Hang Seng Tech down 23.9% year-to-date, lagging globally. Measured from last October's high, it has fallen nearly 40%. One fact that may have been overlooked: two years later, Hang Seng Tech was once less than 4% away from the 2024 9/24 level regarded as the starting point of this bull market, and after two years it has almost returned to the "origin." Chart 1: Hang Seng Tech down 23.9% year-to-date, bottom globally Data as of October 9, 2026 Source: Bloomberg, CICC Research Chart 2: Hang Seng Tech is now just one step away from returning to the 2024 9/24 origin Source: Wind, CICC Research Looking back to the end of last year, the market was still filled with widespread optimism, with many narratives still ringing in our ears: household deposits migrating, balance sheet repair, reflation expectations after the wealth effect, Hong Kong stocks taking over after the A-share "good start," RMB appreciation driving foreign inflows benefiting Hong Kong stocks, and so on. But CICC did not agree with the mainstream view at the time and has consistently maintained a cautious stance: in the end-2025 report "Hong Kong Stocks 2026 Outlook: The Next Step of the 'Bull Market'," CICC judged that Hong Kong stocks' rise was more a phased repair brought by policy impulses plus capital rebalancing, lacking the foundation for a sustained major bull market, and that index upside itself had a clear ceiling. In "Who Is 'Wrong,' the Stock Market or the Exchange Rate?" CICC argued that currency appreciation cannot be regarded as the cause of Hong Kong stock gains, and that directly applying historical relationships without considering the reasons for current currency appreciation is a fallacy. In "Hong Kong Stock Market 2026 H2 Outlook: The Excitement Is Theirs?" CICC further pointed out that the root cause of Hong Kong stocks' significant underperformance this year is essentially a reflection of weakening domestic demand fundamentals and the household credit impulse. If this does not change, Hong Kong stocks will still mainly reflect odds value. Looking back over the past two years, the economy has after all still been growing, exports have continued to beat expectations and drive record trade surpluses, the RMB exchange rate has appreciated significantly, and the global and domestic AI industries have been booming. CICC cannot help but ask: why could Hong Kong stocks surge in 2025 and then plunge in 2026? Why is it that only Hong Kong stocksHang Seng Techhave fallen back to the origin? What has changed in the two years since 9/24? Where did things go wrong? Clarifying these questions will better help CICC judge whether Hong Kong stocks will further break below the 9/24 low, and what could drive another rise. I. Why did Hong Kong stocks perform strongly in 2025 but lag major global markets in 2026? After Hong Kong stocksespecially Hang Seng Techrose 23.5% in 2025, and if measured from the September 2024 low to the October 2025 high, the gain was even as high as 94%, why did they lag globally in 2026 with a 23.9% decline? What exactly changed? First, the most important change is the direction of the household credit cycle. It must be clear that the structure of Hong Kong stocks determines that they are closely related to China's domestic demand and the household sector's credit cycle. Hang Seng Tech in particular is more like a "larger version of a consumption index." Of course, the Hang Seng Index has more dividends and local real estate and financial stocks than Hang Seng Tech, which also explains why its performance this year has been better than Hang Seng Tech. Historically, whenever domestic consumption improved or the household credit cycle improved (such as the 2017 shantytown redevelopment property cycle and the 2020-2021 post-pandemic consumption rally), Hong Kong stocksespecially Hang Seng Techsignificantly outperformed. Whenever consumption weakened and the household credit cycle contracted, Hong Kong stocks generally weakened or underperformed. Chart 3: Over 70% of Hang Seng Tech's weight is concentrated in internet, EVs, e-commerce, and consumer electronicssectors closely tied to consumption Source: Bloomberg, Wind, CICC Research Chart 4: By comparison, the Hang Seng Index is more diversified, with more dividends and local real estate and financial stocks than Hang Seng Tech Source: Wind, CICC Research Chart 5: When domestic consumption improves or the household credit cycle improves, Hang Seng Tech tends to outperform Source: Wind, CICC Research The fluctuations in the household credit cycle can well explain the huge gap between Hong Kong stocks' performance in 2025 and 2026: 1) Since end-2025, compared with the resilience of the corporate sector (especially tech and exports), the household sector's credit impulse has continued to decline, falling below the 9/24 starting point since March this year, and the household loan balance also net decreased for the first time. Against this backdrop, Hang Seng Tech's weakness is not surprisingjust as the A-share consumer sector also fell below the 9/24 starting point. Essentially, under this year's K-shaped divergence of strong tech and weak consumption, Hang Seng Tech reflects the lower half of the K-shaped divergence. 2) Conversely, the same logic can explain why Hong Kong stocks rebounded strongly in 2025. After 9/24, fiscal policy temporarily intensified and subsidized the household sector, driving a repair in the household credit cycle, which became the key reason Hong Kong stocks rebounded first and significantly outperformed. Chart 6: Household credit impulse has been below the 9/24 starting point since March Source: Wind, CICC Research Chart 7: Since March, the year-on-year growth of household stock social financing turned negative for the first time in history Source: Wind, CICC Research Why did the household credit cycle decline again? Behind it is a change in the direction of fiscal efforts. In addition to structural factors such as slow repair of income expectations and confidence and the continued drag from real estate, the main change in 2026 compared with 2025 is that fiscal intensity was basically flat versus last year (the broad deficit ratio of 8.1% was flat versus last year's 8.5%), and the direction of efforts tilted more toward tech and industry, while the household side actually decreased (such as trade-in programs). Chart 8: After 9/24, consumption benefited from fiscal efforts and trade-in policies, but has recently fallen back noticeably Source: Wind, CICC Research This aligns highly with the experience CICC derived from reviewing the three bull markets in 1990s Japan in last November's report "'Ignored' Bull Markets: Lessons from Three Bull Markets in Japan's 1990s": Japan also had three sizable bull markets during the "lost three decades," but each ended after about a year, each beginning with fiscal stimulus and ending with fiscal contraction. Fiscal stimulus can bring phased rebounds, but if deep-seated contradictions are not resolved (such as household balance sheet repair and debt resolution), once policy stimulus fades, the rally is hard to sustain. Therefore, these three "bull markets" did not reverse the trend over the long cycle and were more like "large box-range oscillations," which is remarkably similar to Hong Kong stocks' performance over the past two years. Chart 9: After the bursting of Japan's 1990s bubble, three bull markets emerged with 50% rebounds lasting more than a year Source: Bloomberg, FactSet, CICC Research Chart 10: But over a longer time dimension, they ultimately all showed a "box-range oscillation" pattern Source: Bloomberg, FactSet, CICC Research Second, the absence of tech hardware exposure and the lag of Hong Kong's leading internet companies in AI investment. The AI rally shifted from the main line of computing chips and cloud vendors in 2025 to storage standing out alone in 2026, but Hong Kong stocks' lack of hardware exposure caused them to miss the 2026 tech hardware rally. In addition, besides being dragged down by domestic demand, Hong Kong's leading internet companies also lag behind the U.S. and other Chinese large-model and unlisted companies in AI investment, model R&D, and revenue realization, unlike the momentum after the 2025 DeepSeek moment, all of which dragged down overall index performance. Chart 11: The AI rally gradually shifted from cloud vendors in 2025 to hardware in 2026 Source: Bloomberg, FactSet, CICC Research Chart 12: In model R&D, Chinese big tech also generally lags behind the U.S. and other Chinese large-model and unlisted companies Source: Artificial Analysis, CICC Research Liquidity conditions tightened noticeably. 1) Compared with abundant liquidity in 2025, Hong Kong stocks' liquidity in 2026 tightened significantly, with southbound inflows shrinking from HK$1.4 trillion in 2025 to HK$441.8 billion this year; active public fund allocation fell from a mid-2025 high of 32.1% to 15.1%, below the 9/24 starting point; overseas active funds also continued to flow out, with allocation to the China market falling from 7.2% in mid-2025 to 6.0%. 2) IPO and refinancing scale reached HK$715 billion, already higher than the full-year 2025 total of HK$613.8 billion. 3) Rising U.S. Treasury yields and the Fed restarting rate hikes also created additional pressure ("How Do Rate Hikes Affect the Chinese Market"). But it must be clear that capital is more a result of the market. When the market is good, inflows create a flywheel that reinforces market performance, while when the market is bad, further outflows create negative feedback that suppresses the market. Chart 13: Southbound funds shrank from net inflows of HK$1.4 trillion in 2025 to only HK$441.8 billion year-to-date Source: FactSet, CICC Research Chart 14: Active public fund allocation fell from a mid-2025 high of 32.1% to 15.1% Source: Wind, CICC Research Chart 15: Overseas active funds' China market allocation also fell from a mid-2025 high of 7.2% to 6.0% Source: EPFR, CICC Research Chart 16: 2026 IPO and refinancing scale reached as high as HK$715 billion, already above the full-year 2025 total of HK$613.8 billion Source: Wind, CICC Research II. Two years after 9/24: What has changed, and what has returned to the origin? Standing at the two-year anniversary of the 9/24 policy bottom and the point where Hang Seng Tech has returned to the origin, compared with two years ago, what has changed and what has returned to the origin? CICC reviews the changes over the past two years across multiple dimensions including the credit cycle, market performance, valuation, earnings, and liquidity: Credit cycle: Households back to the 9/24 origin, corporates repairing, fiscal flat. Compared with before 9/24, the fiscal impulse is basically flat, but the policy focus shifted from consumption to technology, so the corporate sector's credit cycle (especially tech and export chains) continued to repair, but the household credit impulse turned downward from Q3 2025 and is now below the 9/24 policy bottom. Market performance: Hang Seng Tech has almost returned to the 9/24 origin, with strong tech and even weaker consumption, and more obvious divergence. Hang Seng Tech is only 7.2% away from the 9/24 starting point, almost back to the starting point of the rally. Breaking down Hang Seng Tech's performance, earnings contributed 2.8% of the 7.2% gain, and valuation expansion contributed 4.4%, both very limited. The Hang Seng Index and MSCI China still have positive returns of 25% and 17%, respectively. A-shares performed more strongly: compared with 9/24, Wind All A rose 50%, while STAR 50 and ChiNext rose 118% and 88%. Chart 17: Breaking down Hang Seng Tech's performance, earnings were basically flat, while the risk-free rate was a major drag Source: Bloomberg, CICC Research At the sector level, compared with the 9/24 starting point, communication equipment (+114%), semiconductors (+113%), and electronic equipment (+108%) doubled, but within the consumer sector, hotels and catering and personal care products performed weakest, falling more than 30%. The same was true for A-shares: communications and electronic components led with gains of 179% and 143%, food and beverages fell 4%, and catering, tourism, and real estate lagged. Chart 18: Hong Kong communication equipment, semiconductors, and electronic equipment have all doubled since 9/24, but domestic consumption sectors weakened Source: FactSet, CICC Research Valuation: Hang Seng Tech valuation has almost returned to the origin, with rising risk-free rates the main drag. Two years later, Hang Seng Tech's 12-month forward PE is 14.2, basically back to the starting point of 14 before 9/24. By comparison, the Hang Seng Index's forward PE was 8.7 at the beginning and is now 9.9, expanding 14.2%; A-share valuation repair is more obvious, with the Shanghai Composite's forward PE rising from 10.7 to 12.4, expanding 16.7%; ChiNext valuation rose from 17 to 19.3, expanding 13.7%. Chart 19: Hang Seng Tech valuation back to the origin, while ChiNext led gains but valuation changed little Source: Wind, CICC Research Further decomposing valuation into the risk-free rate and equity risk premium, CICC finds that Hong Kong stock valuation was mainly dragged by the risk-free rate (dynamically weighted between China and U.S. bonds by southbound trading share), with rising U.S. Treasury yields (from 3.7% to 5.2%) dragging Hang Seng Tech valuation by 13.7%, while improvement in the risk premium contributed 18.1%. By sector, since 9/24, banks and capital goods saw the most significant valuation increases, with forward PE rising from 4.4 and 7.8 to 6.2 and 10.5, respectively; consumer sector valuations contracted sharply, with autos and components falling from 29.1 to 12.6, a contraction of 56.7%; food retail falling from 30.1 to 14.9, a contraction of 50.4%. By contrast, leading sectors such as hardware equipment, semiconductors, and raw materials also saw forward PE contract by 10%-20%, mainly thanks to stronger earnings growth. Earnings: Hang Seng Tech EPS has marked time, with tech growing and consumption declining. Since 9/24, Hang Seng Tech's forward EPS has risen only slightly by 2.5%, bottom among major indices. Hang Seng Index and MSCI China EPS grew 10% over the same period; A-share earnings improvement was more prominent, with Shanghai Composite EPS growing 14% and ChiNext EPS growing 69%, with earnings growth contributing the vast majority of the 88% gain. Chart 20: Hang Seng Tech forward EPS rose only slightly by 2.5%, while ChiNext EPS expanded 65%, with earnings contributing most of the gain Source: FactSet, CICC Research The same is true at the sector level: raw materials and hardware equipment saw EPS growth of 83.3% and 80%, with stock price gains entirely driven by earnings growth; in contrast, consumer sectors such as food and beverages, household products, and durable consumer goods generally saw EPS revised down by 5%-20%, which also corroborates the macro signals mentioned earlier regarding the household credit impulse and weakening stock credit. Liquidity: Southbound inflows narrowed noticeably, and public fund and overseas fund allocations have approached or even fallen below 9/24 levels. Hong Kong stock liquidity has tightened significantly this year, with southbound funds accumulating only HK$440 billion in net inflows in the first nine months, significantly below the HK$1.4 trillion inflow in 2025. In terms of allocation, domestic public funds and overseas active funds' allocations to Hong Kong stocks have both fallen back to near or even below the 9/24 bottom. Domestic active equity public funds' Hong Kong stock holdings fell from a mid-2025 high of 32.1% to 15.1% in Q2, a new low since Q3 2022. Overseas funds were the same: EPFR shows overseas active funds have continued to flow out this year, with allocation to Chinese equities falling from 7.2% in mid-2025 to 6% as of end-August, close to 5.6% at 9/24. In summary: two years after 9/24, Hang Seng Tech has "marked time," with valuation back to the starting point and earnings almost zero growth. Within this, the tech sector's performance and earnings both grew significantly, while consumption's performance, earnings, and valuation all contracted sharply and fell below 9/24 levels, meaning structural divergence is even more pronounced than before 9/24. In terms of capital allocation, public fund Hong Kong stock allocation is already below 9/24 levels, and overseas funds have basically given back the past two years' allocations. III. Why, when the overall economy is still okay, has Hang Seng Tech become a global return laggard? Over the past two years, China's real GDP growth has remained around 5.0%, and aggregate growth is not bad. At the industry level, there is no shortage of bright spots, such as AI computing power and new energy and other new quality productive forces booming, while external demand has remained highly prosperous and continued to beat expectations. But in sharp contrast, Hong Kong stocksespecially Hang Seng Techhave retraced significantly, almost back to the 9/24 starting point, with index returns clearly diverging from the macro economy. Compared with the U.S. (around 2.2%), although real GDP growth is lower than China's, its stock market performance is stronger. In addition to the special structural factors and liquidity conditions of Hong Kong stocks and Hang Seng Tech mentioned earlier, there are two aggregate reasons: first, U.S. nominal growth is higher (U.S. nominal GDP growth in 2025 was about 5% vs. China's nominal GDP growth of 4%); second, the transmission from nominal growth (revenue) to actual profit (earnings), which includes differences in profit margins and turnover. Chart 21: Although China's real GDP growth is higher than the U.S., U.S. nominal GDP growth is higher after accounting for inflation Source: Wind, CICC Research Aggregate economic expansion, export growth, and improved industry prosperity do not necessarily mean listed company profits grow in tandem. If 1) excessively fierce or even irrational competition leads to lower profit margins, it will result in "revenue growth without profit growth"; 2) excessive investment without regard for returns will lower turnover and increase leverage, and even if book profits grow, it will squeeze cash flow and ultimately affect capital returns. Specifically, Intensified industry competition, rising raw material prices, and exchange losses can all lead to margin declines, resulting in "revenue growth without profit growth." Against the backdrop of insufficient demand and rapid supply expansion, companies compete for market share through price cuts and expand revenue scale, but may face continuously declining profit margins. The gross margin of industrial enterprises above designated size (12-month average) fell from 17% in 2021 to the current 15%, with a slight improvement since 2026. In addition, along with the continuous decline in capacity utilization, the share of loss-making enterprises rose to 30%, also reflecting intensified industry competition. At the listed company level, the gross margin of A-share non-financial companies fell from 18.3% in 4Q21 to 17.7% in 2Q25, returning to 18.3% in 2Q26. In the first half of the year, the gross margin and net margin of Hong Kong non-financial companies were 22.8% and 6.4%, respectively, also slightly improved, but still significantly below the highs of 25.8% and 8.3% in the first half of 2018. The above improvement was also driven by some sectors. The tech sector's profitability improved, with the information technology industry's gross margin rising from 17.4% in the first half of 2025 to 18.9% in the first half of 2026, among which the semiconductor net margin rose sharply from 3.8% to 9.0% over the same period. By contrast, the consumer sector continued to come under pressure, with gross margin falling from 29.6% to 28.8% over the same period, and net margin falling from 9.4% to 7.3% ("How to Allocate in Q4? Win-Rate and Odds Clues from Financial Reports"). Chart 22: Tech sector profitability improved, while the consumer sector continued to come under pressure, with gross margin falling to 28.8% over the same period Source: Wind, CICC Research Overinvestment and inefficient expansion reduce capital use efficiency. Even if absolute book profits are still growing, they may still ROE. Even if large amounts of new investment may boost profits in the short term, if continued reliance on leverage and low-return capacity expansion persists, the ultimate return on capital may instead decline. The slow clearing of inefficient capacity leads to supply growing faster than demand, which not only intensifies price competition but also reduces the use efficiency of existing assets, lengthens accounts receivable collection periods, and slows inventory turnover. For example, the average collection period for manufacturing accounts receivable has lengthened to more than 70 days, and the inventory turnover days for finished goods have risen to 21 days, with longer collection periods and higher working capital occupation. In "Comparison of Profitability of Chinese and U.S. Listed Companies," CICC deeply explored the systematic gap between the profitability of Chinese non-financial listed companies and U.S. companies. MSCI China's ROE is significantly lower than that of U.S. stocks, with margin differences explaining most of the ROE difference, and asset turnover is also generally low, consistent with the conclusions above. This can in turn be attributed to differences between China and the U.S. in the efficiency of factor resource allocation in primary distribution (the allocation mechanism of financial resources), tax differences in secondary distribution, position in the global value chain, industry concentration, and other aspects. In summary, converting high investment in prosperous industries into profits requires matching high profit margins and higher asset turnover to support it. Excessively fierce or even irrational competition, or overinvestment without regard for returns, may squeeze final profits and asset returns. IV. Will it break below 9/24, and what can drive another rise? Short-term odds value is prominent, but the long term depends on household credit repair In the short term, according to the framework CICC outlined in "Bottom Characteristics of the Hong Kong Stock Market," after the recent new round of rapid pullback, Hang Seng Tech has once again acquired short-term bottom characteristics, namely odds value: 1) valuation and risk premium: the current 14.2x forward PE is already the lowest since 9/24, and the 2.9% risk premium is just one step away from the late-June high of 3%; 2) sentiment: the 14-day RSI once reached an oversold level of 27.7; 3) capital: southbound funds have recently shown signs of accelerating inflows, which, according to the patterns outlined in "Who Is 'Smart Money'," can be regarded as a short-term bottom indicator. CICC's latest odds-win rate framework shows that Hang Seng Tech's odds are in an attractive range. Chart 23: Hang Seng Tech has once again touched oversold territory Source: Bloomberg, CICC Research Chart 24: CICC's latest cross-asset and market odds-win rate framework shows Hang Seng Tech's odds are in an attractive range Source: Wind, FactSet, CICC Research But it must be clearand this is also a point CICC has consistently emphasized: relying solely on oversold sentiment, low positioning, and valuation odds only constitutes the conditions for a short-term rebound, and does not directly equate to a trend bottom having been established. Low valuation can mean it does not fall (odds), but it does not necessarily mean it rises (win rate). This is both the lesson the market taught CICC over the past year and the experience the 1990s Japanese market gave CICC ("'Ignored' Bull Markets: Lessons from Three Bull Markets in Japan's 1990s"). For Hong Kong stocks to rise again, the core depends on the credit cycle, especially a substantive improvement in the household credit cycle, which was also the key to the 2025 rebound, and in the short term this depends on tilted fiscal efforts (recreating a 9/24 moment). This week, the Ministry of Finance arranged RMB 550 billion in local government debt carryover quota, which will mainly be deployed in November-December[1], about RMB 50 billion more than the same period last year. CICC estimates that the broad fiscal deficit impulse in Q4 is expected to rise slightly, but more direct efforts on the household side are still needed. In addition, the DeepSeek moment for Hong Kong-listed internet leaders is another catalyst to watch (after the year-end index adjustment, its structure is expected to improve slightly, "The Impact and Significance of Hang Seng Tech Expansion").