Amid the oscillating tug-of-war in Hong Kong stocks, which sectors can hold on to cash flow, easing investors’ anxiety?

As of April 6, the full-year earnings growth rate for non-financial sectors in the Hong Kong stock market in 2025 is roughly around 3.5%, and the disclosure proportion is already very high, reaching 98.4%. Overall, the share of companies whose results are better than expected is about 17%. After these stocks are announced, on average they can make 0.8% more on the second day. By the fifth day, this advantage widens to about 3.3%, indicating that the market’s reaction to results that beat expectations is still fairly grounded.

Taking the innovative drug sector as an example, in 2025 the earnings growth rate reaches 21.5%, with the proportion that beats expectations at nearly 29%. After the announcement, short-term excess return performance is strong; by the fifth day it can even approach 10%. This reflects that investors’ recognition of improvements in the fundamentals of the pharmaceutical sector is increasing. By contrast, although the internet sector also has a number of companies with results better than expected, the proportion is as high as 43.5%, yet the market reaction is rather negative: on average, they make 2.7% less on the second day. The main reason is that the growth rates of some leading companies drag down the overall figures, and after they increase investments related to artificial intelligence, short-term profit expectations are revised downward by about 6.9%. Investors’ confidence in the more distant future performance of these companies still seems to be insufficient.

On the sentiment side, the latest reading of the relevant Hong Kong stock-related indices is 28.6, still within a subdued range. From last year to now, this kind of low level has appeared several times. Historical data shows that the probability of a rise in the following two to three weeks is not low, with an average increase of about 3% to 4%. This makes some people feel that perhaps we are currently in a window period for a left-side layout, even though no one can say for sure when the turning point will truly arrive.

In terms of allocation thinking, many analysts believe it is still necessary to maintain a certain defensive posture. Especially for products with relatively steady operations that can provide stable returns, such as banks, railway and highway transportation, and Hong Kong local utility companies. These areas have relatively small fluctuations, and their cash flows are tangible and visible; when the market is swinging, they can give people a sense of steadiness. By comparison, for oil and gas—cyclical dividend-style assets with strong cyclicality—attention should be paid to the risk of crowding and the risk that price volatility increases; don’t rush in and chase higher prices.

Another direction worth noting is the adjustment toward a balance between internal and external demand. For externally driven consumer discretionary products—especially those in fields where revenue and supply-chain exposure in Asia and Europe are relatively large, such as consumer electronics—it is recommended to appropriately reduce their weighting. Because the market is already preparing for a potential downside next year, although the hardware equipment sector this year has a proportion of 29% of companies whose performance beats expectations, the post-announcement return performance is not ideal.

Conversely, for the midstream manufacturing and broad energy chain in China, where external demand may be maintained or even strengthened in the medium term, you can still continue to hold. These areas have relatively stable positions in the global industrial chains, and their competitiveness is there. As for domestic consumption, some sub-sectors where certain positions have already been gradually digested and expectations have been revised downward sufficiently—such as dairy products, condiments, and other daily necessities—as well as part of service consumption, are worth increasing attention to moderately.

The innovative drug sector, however, offers another kind of picture. Some companies have started to reap the fruits of commercialization through ways such as overseas authorization or licensing. Take San Sheng Guo Jian as an example: last year net profit surged, and the authorization business made a clear contribution. Stories like this show that Chinese companies’ position in the global pharmaceutical innovation chain is gradually moving forward. Compared with sectors that are heavily affected by fluctuations in external demand, the growth logic of innovative drugs is relatively independent of the macro cycle, giving investors an opportunity to seek alpha returns.

In the current environment, Hong Kong local stocks are also viewed by some as a bottom-holding choice with relatively good cost-effectiveness. They are close to the local economy, their operations are relatively transparent, and they provide a certain buffer amid uncertainty.

Of course, the market is never smooth sailing. If there are new changes in the situation in the Middle East, it may further affect risk appetite and lead to increased volatility in capital flows. If the intensity of policy support does not reach expectations, it may also slow down the pace of valuation repair. These are risk points that need to be monitored continuously.

Looking back, the volatility during this period is also, in a way, reminding everyone that investing is not simply about chasing hot themes—it’s about combining fundamentals with one’s own circumstances and slowly building up a structural framework. Like stacking building blocks, steady progress one piece at a time is more solid than blindly piling up height. Companies with steady operations and reliable cash flows often manage to stand longer through storms.

Have you noticed that when market sentiment is low, it is actually a good time to re-examine your holdings? By separating which sectors truly have long-term logic and which are only short-term excitement, it may help make the portfolio more resistant to tests. No matter how the external environment changes in the future, maintaining rationality and focusing on balance is ultimately an attitude worth sticking with.

Overall, the current environment for Hong Kong stocks requires patience and a structural mindset. Combining defense and offense, and rebalancing internal and external demand, may help investors seize some relatively more certain opportunities amid the churn. The market always moves forward through repetition, and what we can do is to look more, think more, and gradually turn our judgments into concrete action.