In early August 2026, the global macroeconomic coordinate axis welcomed a key turning point signal. As the latest disclosed US July non-farm employment data was significantly lower than market expectations, the unemployment rate slightly increased, and inflation pressure further eased, the CME Fed Watch tool showed that the probability of the Fed initiating its first rate cut at the September meeting has soared to 85%. This major shift in macro logic is profoundly reshaping the direction of global capital flows. For the Hong Kong stock market, which is mired in low valuation but has both high growth and high dividend attributes, a "value revaluation" rally driven by liquidity expectation reversal is brewing. Why allocate to Hong Kong at this node? The answer is not only hidden in the interest rate cycle shift, but also in the unique asset cost-effectiveness advantage of Hong Kong stocks.
Start of Rate Cut Cycle: Hong Kong Liquidity "Shackles" Removed
Hong Kong implements a linked exchange rate system, which means the Hong Kong Monetary Authority's benchmark interest rate follows the Fed's pace. During the high-interest rate cycle of the past two years, Hong Kong Interbank Offered Rate (HIBOR) has remained high, not only bringing pressure to the local Hong Kong economy but also directly suppressing the valuation expansion of Hong Kong stocks. High risk-free interest rates make global capital more inclined to flow to US Treasuries and other safe assets, leading to significant liquidity drainage from the Hong Kong market.
However, the sharp rise in September rate cut expectations has completely reversed this narrative. From the asset pricing model (DCF) perspective, the decline in risk-free interest rates will directly raise the valuation center of equity assets. As an offshore market, Hong Kong is extremely sensitive to global liquidity. Once the Fed starts the rate cut cycle, the US dollar index weakens, the Hong Kong dollar softens, which can not only significantly reduce the financing and exchange pressure of Hong Kong listed companies but also promote global arbitrage capital to overflow from the US market to emerging markets in Asia-Pacific. With its extremely low valuation base, Hong Kong will surely become the first "safe haven" for foreign capital to replenish Asia-Pacific positions.
Global Valuation Low: Why Does Hong Kong Have Extremely High Allocation Cost-effectiveness?
To answer "why allocate to Hong Kong," the primary logic lies in its incomparable valuation advantage. As of early August 2026, the Hang Seng Index's P/E ratio (PE-TTM) still hovers around 9 times, and P/B ratio (PB) is less than 1 time, at the bottom of global major capital markets. Horizontally, the S&P 500 index PE exceeds 25 times, the Nikkei 225 index is around 20 times, and even the valuation of the A-share CSI 300 index is significantly higher than Hong Kong stocks.
This deep "valuation discount" is not caused by a fundamental collapse but by the mispricing caused by differences in liquidity pricing mechanisms. As the Fed rate cut expectation is realized, this valuation gap will inevitably mean revert. More importantly, Hong Kong gathers a large number of core assets of China's new economy, including internet technology, innovative drugs, new energy vehicles, etc. After deep adjustments in the past few years, the performance of these companies has entered a substantive realization period. Low valuation combined with fundamental bottoming recovery forms classic "Davis double-click" potential.
High Dividend Defense Base: Southbound Capital's "Ballast Stone"
When discussing Hong Kong investment advantages, its high dividend characteristics that overshadow the global market must be mentioned. The Hong Kong market has a large number of state-owned central enterprises, state-owned enterprises, and leading companies in mature industries, such as telecommunications operators, the four major banks, and energy giants. These companies have abundant cash flow, strong dividend willingness, and dividend rates maintained between 6% and 10% for many years.
In the rate cut cycle, the yields of fixed-income assets will inevitably decline, while high dividend assets in Hong Kong show extremely strong "bond-like" allocation value. Taking the 10-year US Treasury yield falling below 4% as a reference, the net dividend rate of over 7% in Hong Kong stocks shows exponential attraction to long-term capital. This is also why recent southbound capital has been buying heavily into Hong Kong bank stocks, coal stocks, and telecom stocks through Hong Kong Connect. For mainland investors, allocating to Hong Kong high-dividend stocks can not only obtain certain cash flow across bull and bear markets but also hedge against RMB exchange rate fluctuations to some extent.
AI Growth Offense Main Line: Valuation Repair Space for Tech Stocks
In addition to the defensive attributes of high dividends, the other charm of Hong Kong lies in the offensive elasticity of the tech sector. Since 2026, generative AI technology has entered a period of application implementation explosion. Hong Kong internet giants, with their huge user base and rich application scenarios, have become pioneers in AI monetization.
As the Fed rate cut expectation warms up, the duration attribute of growth stocks makes them more sensitive to interest rates, and the valuation repair space is much larger than that of value stocks. Currently, the P/E ratio of the Hang Seng Tech Index is at the historical mid-low level, while the revenue growth rate and profit margin of its constituent stocks continue to improve. From advertising recovery to cloud business regaining growth, to cost reduction and efficiency brought by AI large models, the endogenous growth momentum of Hong Kong tech giants is strong. When foreign capital replenishes emerging markets, it tends to "buy low valuation + buy growth," and Hong Kong tech stocks happen to fit this global asset reallocation aesthetic.
Complementarity Between Hong Kong and A-shares: A Must-Option for Optimizing Asset Allocation
From the perspective of asset allocation portfolio theory, another core reason for allocating to Hong Kong lies in its low correlation and complementarity with A-shares. Although the fundamental base of Hong Kong stocks is Chinese assets, affected by domestic macroeconomic fundamentals, due to its offshore market attributes, the capital side is dominated by overseas liquidity, which leads to significant differences in fluctuation rhythm and structure between Hong Kong and A-shares.
- Industry Structure Complementarity: A-shares have strong representation in high-end manufacturing, new energy, and cyclical stocks, while Hong Kong dominates in internet platforms, innovative biologics, online consumption, and international finance. Including Hong Kong in an investment portfolio can effectively fill the gaps in A-shares in certain new economy fields.
- Volatility Feature Complementarity: Hong Kong stocks, due to no price limit and T+0 trading, release short-term emotions more fully, often digging out "golden pits" when the market is extremely panic; while when liquidity improves, the rebound power is extremely strong. A-shares, on the other hand, show relatively stable fluctuation characteristics. The combination of the two can effectively suppress non-systematic fluctuations of a single market.
- Dividend Tax Difference and Arbitrage: When allocating to Hong Kong stocks through Hong Kong Connect, mainland investors need to face certain dividend tax (usually withheld at 20% by enterprises), but the absolute dividend rate of Hong Kong stocks is much higher than similar companies in A-shares. After deducting taxes, the net return still has overwhelming advantages. For institutional investors, the optimization expectation of Hong Kong Connect dividend tax is also a potential policy catalyst.
Risk Warnings and Allocation Strategy Recommendations
Although the warming of rate cut expectations provides an excellent macro window for Hong Kong allocation, investors still need to be vigilant about potential risks. First, if US inflation rebounds due to energy prices, it may lead to the rate cut rhythm being slower than expected, causing Hong Kong fluctuations; second, the complexity of geopolitical gaming may affect foreign risk preferences in stages; finally, although Hong Kong stocks have no price limit, while enjoying high elasticity, it is also necessary to prevent liquidity discount risks from individual black swan events.
In terms of specific allocation strategies, it is recommended to adopt a "dumbbell" strategy: one end heavily invests in low valuation, high dividend, and state-owned enterprise reform background dividend stocks as the core position to obtain certain dividend defense against fluctuations; the other end buys low Hang Seng Tech Index components such as AI leaders, internet platforms, and innovative pharmaceutical companies, to bet on valuation expansion and performance Davis double-click under the rate cut cycle. In the context of global capital re-evaluating the rate cut logic, Hong Kong is moving from a "valuation low" to a "value highland," which may be the best strategic allocation window in the past three years.
