According to a research report, Hong Kong stock valuations currently sit at historically above-average levels, with expectations for continued upward volatility in the Hong Kong stock market going forward. In terms of allocation strategy, focus is recommended on the following sectors: (1) sectors benefiting from favorable policies and industry tailwinds, such as AI industry chain, lithium battery, and service consumption sectors; (2) tourism and travel-related sectors expected to gain momentum as the Mid-Autumn Festival and National Day holidays approach; (3) technology stocks with higher volatility likely to attract capital flows as the Fed rate cut materializes, China-US dialogues continue, and market risk appetite recovers.

**Weekly Hong Kong Stock Market Performance** (1) During the week of September 15-19, global major stock indices showed mixed performance. Hong Kong's three major indices collectively strengthened, with the Hang Seng Index rising 0.59% to 26,545.10 points, the Hang Seng Tech Index surging 5.09%, and the Hang Seng China Enterprises Index gaining 1.15%.

(2) At the sector level: 4 sectors rose while 7 declined during the week. Industrials, consumer discretionary, and information technology led gains with increases of 6.08%, 3.57%, and 1.90% respectively; financials, utilities, and materials posted the largest declines at 3.60%, 2.59%, and 2.19% respectively. Among sub-sectors, electrical equipment, semiconductors, automobiles and components, discretionary retail, and coal industries topped the gainers, while non-bank financials, paper and packaging, building materials, REITs, and banking led the decliners.

**Hong Kong Stock Liquidity** (1) Average daily turnover at the Hong Kong Exchange reached HK$347.12 billion during the week, an increase of HK$44.092 billion from the previous week. Average daily short selling amounted to HK$32.485 billion, down HK$1.913 billion from the previous week; the daily average ratio of short selling to total turnover was 9.35%, declining 2.03 percentage points week-over-week.

(2) Southbound capital recorded cumulative net purchases of HK$36.851 billion during the week, decreasing by HK$23.971 billion compared to the previous week.

**Hong Kong Stock Valuations and Risk Appetite** (1) As of September 19, the Hang Seng Index PE and PB ratios stood at 12.04x and 1.23x respectively, up 0.02% and 0.02% from the previous Friday, representing 86% and 89% percentile levels since 2019. The Hang Seng Tech Index PE and PB ratios were 23.86x and 3.49x respectively, at 34% and 74% percentile levels since 2019.

(2) As of September 19, 2025, the 10-year US Treasury yield rose 8bp week-over-week to 4.14%, with the Hang Seng Index risk premium at 4.17%, representing -2.18 standard deviations from the 3-year rolling average and sitting at the 4th percentile since 2010. The 10-year Chinese government bond yield increased 1.19bp to 1.8789%, resulting in a Hang Seng Index risk premium of 6.43%, at -2.0 standard deviations from the 3-year rolling average and the 41st percentile since 2010.

(3) As of September 19, the Hang Seng Shanghai-Shenzhen-Hong Kong Connect AH Premium Index declined 2.06 points week-over-week to 117.11, at the 9th percentile level since 2014.

**Hong Kong Stock Market Investment Outlook** On the international front, the Federal Reserve announced its interest rate decision on September 17 local time, with the FOMC deciding to cut the federal funds rate target range by 25 basis points to 4%-4.25%, marking the first rate cut of the year and the resumption of rate cuts after a 9-month pause. Fed Chair Powell stated that the 25bp cut aims to address economic growth deceleration and employment risks, with future decisions to be made meeting-by-meeting based on data. US job growth has slowed with rising downside employment risks. Fed rate cut expectations have strengthened, boosting market risk appetite.

Domestically, China's August economic data was released. In August, national industrial value-added above designated size grew 5.2% year-over-year and 0.37% month-over-month, the service production index increased 5.6% year-over-year, and total retail sales of consumer goods rose 3.4% year-over-year and 0.17% month-over-month. From January to August, national fixed asset investment grew 0.5% year-over-year, with manufacturing investment up 5.1% and real estate development investment down 12.9%.

Looking ahead, attention is recommended for the following Hong Kong stock sectors: (1) sectors benefiting from favorable policies and industry tailwinds, such as AI industry chain, lithium battery, and service consumption sectors; (2) tourism and travel-related sectors expected to see increased activity as Mid-Autumn Festival and National Day holidays approach; (3) technology stocks with higher volatility likely to attract capital flows as Fed rate cuts materialize, China-US dialogues continue, and market risk appetite recovers.

**Risk Warnings**: Risks of domestic policy intensity and effectiveness falling short of expectations; risks of overseas rate cuts falling short of expectations; risks of unstable market sentiment.