China/HK Equities: Quality on Sale
A sharp retreat. Mainland China and Hong Kong (HK) equities have come under renewed pressure as investors reassess policy expectations and earnings delivery in a “higher-for-longer” inter...
Chief Investment Office - Hong Kong version23 Oct 2026
  • China/HK equities saw a sharp sell-off in recent weeks as investors reassess near-term policy outlook and earnings expectations in a “higher-for-longer” interest rate environment
  • The weakness reflects faded stimulus hopes after a solid 3Q GDP print, limited policy signals from regulators, early earnings disappointments, and a wait-and-see stance amongst investors in an elevated global yield environment
  • Much of the negative news appears to be already priced in; China’s medium-term outlook remains supported by exports and technology upgrading, while onshore regulators are actively cushioning downside risks
  • The recent correction is an opportunity to sharpen portfolio quality via selective accumulation in technology, high-quality platform names, and financials; onshore continues to offer stronger fundamentals and policy alignment
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A sharp retreat. Mainland China and Hong Kong (HK) equities have come under renewed pressure as investors reassess policy expectations and earnings delivery in a “higher-for-longer” interest rate environment. The CSI 300 reached technical bear territory yesterday, down c.20% from its June high, while the Hang Seng Index tested multi-month lows with the Hang Seng Tech Index sliding to multi-year lows as well. Technology shares bore the brunt with selling extended to previously favoured AI build-out beneficiaries.

Expectation reset. Several overlapping factors are contributing to the weakness. Solid 3Q GDP growth in China tempered hopes for an imminent broad-based stimulus package. Policy signals from the Financial Street Forum (e.g. PBOC’s study of shifting towards the overnight reverse-repo rate as the main policy rate) appears to focus on refinement rather than meaningful easing. SAMR’s recent symposium with major online platforms on product and service quality has added near-term caution in the technology and platform space. Early earnings disappointments, notably CATL’s 3Q26 earnings miss and underwhelming market result previews on internet names (e.g. Tencent, Alibaba and Baidu) have set a softer tone ahead of results season. Continually elevated global bond yields have further kept investors sidelined.

Corrections appear overdone. While these factors may continue to weigh on China/HK equities’ near-term performance, the scale of the recent correction appears overdone relative to its underlying fundamentals. Much of the policy uncertainty, earnings caution, and yield pressure are already reflected in the price with valuations in technology and platforms having compressed meaningfully. China’s medium-term economic outlook remains intact, supported by export resilience and structural progress in technology and industrial upgrading. Regulators have also demonstrated a clear intent to cushion downside risk (with possible national team buying in broad-based and technology-based onshore ETFs in recent trading sessions). Lower valuations post-correction, therefore, improves the risk-reward for selective accumulation, rather than signal a fundamental deterioration in the growth or policy roadmap.


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