Analysis of A-share and Hong Kong Stock Investment Strategies Amid Fed Rate Cuts and Rising Long-Term Interest Rates

Based on the latest market data analysis, we observe an anomalous phenomenon where long-term interest rates rise instead of falling amid expectations of Fed rate cuts in December. This reflects the macro backdrop of global liquidity tightening, with main reasons including:

1. U.S. Treasury yield curve steepening
   : The 10-year Treasury yield is close to 5%, while the federal funds rate is expected to be around 4%, with a spread exceeding 1 percentage point [0]

2. Liquidity tightening signal
   : The widening of long-short interest rate spreads usually indicates a tightening of the global liquidity environment, which has an important impact on capital flows in emerging markets

According to the latest spirit of the Central Economic Work Conference, 2026 will focus on developing

, with technology sectors such as AI, semiconductors, and robotics becoming key investment themes [1]. The Central Economic Work Conference clearly mentioned “seeking progress while maintaining stability, improving quality and efficiency”, and policy tools are more focused on quality and efficiency rather than total expansion.

• Technology growth sector
  : Benefiting from national strategic support, AI model progress is accelerating, applications are advancing rapidly, and domestic computing infrastructure construction is in short supply [1]
• Cyclical industries
  : Recommend non-ferrous metals and chemical sectors, which have elasticity in an environment where macro tail risks are reduced
• Financial sector
  : Capital market reform is developing in depth, banks’ interim dividend policies are adjusted, and securities and insurance sectors have both offensive and defensive capabilities

Historical experience shows that the 7 days after the Central Economic Work Conference are often a period when the broad market style is relatively dominant, especially 4 out of the past 5 years [1].

Currently, the valuations of high-quality Hong Kong-listed companies are at historical lows:

• Tencent Holdings (0700.HK)
  : Current P/E ratio is 23.80x, P/B ratio is 4.44x, in a reasonably low range [0]
• Alibaba (9988.HK)
  : P/E ratio is 19.61x, P/B ratio is 2.34x, with strong valuation appeal [0]

Financial analysis of high-quality Hong Kong-listed companies shows:

:

• Financial attitude classification: Conservative accounting policy
• Debt risk: Low risk level
• Free cash flow: HK$181.8 billion, strong cash flow [0]

:

• Financial attitude classification: Neutral balance
• Debt risk: Low risk level
• Free cash flow: HK$77.5 billion, stable cash flow [0]

Several international investment banks are optimistic about Hong Kong stocks’ performance in 2026:

• HSBC Private Bank
  : Expects the Hang Seng Index to rise to 31,000 points by the end of 2026
• Futu Securities
  : Target 31,000 points, optimistic scenario up to 34,000 points
• DBS Bank
  : Base scenario target 30,000 points, most bullish forecast 36,500 points [2]

In the liquidity tightening environment, capital flows show the following characteristics:

1. Divergence in Sino-US monetary policies
   : Fed rate cut expectations vs China’s relatively loose monetary policy create an interest rate spread environment favorable to RMB assets

2. Multinational capital return
   : As China’s macroeconomic data improves and policy support increases, international capital’s willingness to allocate to A-shares and Hong Kong stocks is enhanced

3. Sustained southbound capital
   : Southbound capital inflows via Stock Connect provide important liquidity support for the Hong Kong stock market

1. Core positions
   : Targets related to new productive forces such as AI computing power, semiconductor equipment, and robotics
2. Cyclical positions
   : Cyclical stocks such as non-ferrous metals and chemicals that benefit from economic recovery
3. Defensive positions
   : High-quality financial stocks such as securities and insurance

1. Technology leaders
   : Internet giants with reasonable valuations such as Tencent and Alibaba
2. Consumption recovery
   : Targets that benefit from consumption policy stimulus
3. High dividends
   : Infrastructure and utility stocks with stable dividend-paying capabilities

1. Liquidity risk
   : If long-term interest rates continue to rise rapidly, it may trigger further tightening of global liquidity
2. Policy implementation risk
   : There are uncertainties in the strength and effectiveness of policy support
3. Geopolitical risk
   : Changes in Sino-US relations may affect market sentiment

In the current complex environment where the Fed cuts interest rates but long-term rates rise, both A-shares and Hong Kong stocks have important allocation value.

, especially leading enterprises with stable fundamentals and strong cash flows such as Tencent and Alibaba. Investors should seize China’s policy dividend cycle, focus on allocating core assets that benefit from the development of new productive forces, and maintain an appropriate liquidity management strategy.

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[0] Gilin API Data - Real-time market data, company financial analysis, valuation indicators
[1] Yahoo Finance Hong Kong - “〈Mainland Stock After-hours〉Central Economic Work Conference vows to support economy, three major indices rebound across the board” (December 13, 2025)
[2] Yahoo Finance Hong Kong - “Horse Year Outlook | HSBC predicts Hang Seng Index to reach 31,000 points by end of 2026; DBS’s ‘most bullish’ forecast is 36,500 points” (December 2025)