Late March ushers in the "all clear" window; institutions say that the combination of unlocking restrictions easing and clearer earnings outlook may help Hong Kong stocks reverse course

Ask AI · How the end of the Hong Kong stock market “unlocking” peak should align with earnings disclosures to drive a market reversal?

Caixin News, March 25 (Editor Hu Jiarong) Since the end of last year, marked differentiation has emerged within the Hong Kong stock market. For example, the Hang Seng Tech Index has continued to adjust downward. The main drivers are pricing led by overseas capital: they have a low tolerance for earnings imperfections and are sensitive to offshore liquidity, which has led to large-scale selling ahead of earnings delivery.

Meanwhile, the Hong Kong high-dividend sector hit new highs, mainly priced by Southbound funds. With its high-dividend defensive characteristics, it has provided support for the market and helped keep the Hang Seng Index broadly flat.

Core Issue Analysis

CICC points to two main issues affecting the market. First, there is no sign that Middle East funds have been flowing into Hong Kong stocks on a large scale to “seek refuge” in the secondary market. Their participation mode is still dominated by strategic allocation in the primary market (such as IPO cornerstone investments), and it has not formed a systematic capital transfer.

Second, in recent days, the proportion of Hong Kong stock short-selling transaction volume is about 12%, having already reached the high levels seen in the bear markets of 2021–2022, which implies that there is limited room for further upside. A high short-selling ratio does not necessarily signal that the market will continue to fall. Instead, it could trigger a “short squeeze” when the market warms up, amplifying the rebound.

Key observation window for the “bad news fully gone”: late March

CICC’s report believes that multiple potential negative factors may be concentrated in digestion in late March 2026, thereby entering a window period for “bad news being fully resolved”:

End of the unlocking peak: March is the peak period for unlockings in the first half of the year for Hong Kong stocks (with a scale of nearly 100 billion Hong Kong dollars). After entering the second quarter, the unlocking scale will drop significantly. Historically, individual stocks often bottom out during unlockings, and this round of unlocking landing may become a phase-end point for sentiment shocks.

Removal of earnings uncertainty: The 2025 annual reports of key constituent stocks of the Internet and Hang Seng Tech will be basically disclosed by the end of March, eliminating the pressure from earnings uncertainty. Among them, Alibaba Cloud’s price increases could become a catalyst for an earnings turnaround in the technology sector.

External environment may improve: The Trump visit to China originally scheduled for the end of March has been postponed to April. If it proceeds as later expected, it may help ease external tensions and the valuation pressure on the market.

Geopolitical disturbances may be absorbed: Due to the Iran–U.S. conflict, market expectations for the U.S. Federal Reserve to cut rates in 2026 have dropped to 0. Once such short-term geopolitical shocks are digested by the market, there may be room to restore valuations that were previously suppressed.

Allocation Recommendations

CICC’s report provides two sets of allocation thinking under different scenarios:

If market sentiment improves in late March: It is recommended to focus on Hang Seng Tech and the Hong Kong-listed internet sector. The logic is that AI large models need C-end application scenarios to monetize, and related progress may catalyze fundamentals. At the same time, the internet sector is priced by overseas capital. If expectations for offshore liquidity reverse later, the rebound elasticity could be greater.

If, subsequently, liquidity tightens again beyond expectations: Consider defensive allocation opportunities in Hong Kong dividend/“red-bill” style strategies. The logic is that March–April is the peak period for annual report dividends, and high-dividend proposals and “dividend-rights trading” could drive sector gains. Historical data shows that during this period, the probability of the Hong Kong dividend/“red-bill” index delivered via Stock Connect rising is as high as 91%.

(Caixin News Hu Jiarong)