Year-end recovery of Hong Kong stocks: Sector rotation logic and year-end investment strategy

On December 22, the three major Hong Kong stock indices opened higher, with sectors such as optical communication and autonomous driving leading the gains. HuiJu Technology and Yangtze Optical Fibre and Cable surged over 10%, while Pony.ai-W rose more than 9%, marking the Hong Kong stock market's entry into a volatile recovery period. Against the interplay of year-end liquidity, policy shifts, and industry fundamentals, sector rotation in Hong Kong stocks has become increasingly pronounced, making structural opportunities the core logic for investors' year-end positioning.

I. Core Drivers of Hong Kong Stocks' Recovery

1. Release of Positive Industry Fundamentals
The strength in the optical communication sector stems from increased demand for fiber optic cables due to the accelerated construction of global computing power networks. Overseas orders and capacity expansion from companies like Yangtze Optical Fibre and Cable provide earnings support. Meanwhile, the autonomous driving sector benefits from the accelerated commercialization of L3 autonomous driving in China, with companies like Pony.ai exceeding market expectations in technological iteration and scenario deployment, acting as catalysts for sector sentiment.
2. Marginal Improvement in Liquidity
Northbound capital's willingness to allocate to Hong Kong stocks has rebounded at year-end, supplemented by liquidity enhancements from the optimization of Stock Connect trading mechanisms, injecting incremental funds into sectors like technology and advanced manufacturing. Additionally, as expectations for Fed rate hikes cool, foreign capital's allocation to emerging market assets has increased, directly benefiting Hong Kong as an offshore market.
3. Market Sentiment Rebounds from Lows
Previously suppressed by geopolitical tensions and the China-U.S. interest rate gap, Hong Kong stocks' valuations were at historic lows. As negative factors gradually dissipate, risk appetite is recovering, and capital is flowing back into high-growth, low-valuation sectors.

II. Sector Rotation Logic and Opportunities in Year-End Hong Kong Stocks

1. Tech and Manufacturing Focus: Sustainability of Optical Communication and Autonomous Driving
Optical Communication: The construction of global AI computing centers is driving fiber optic cable and optical module demand into a high-growth phase. Hong Kong-listed stocks in this sector remain undervalued compared to A-share peers, offering room for valuation recovery. Focus on leading companies with global supply chain advantages.
Autonomous Driving: Collaboration between domestic automakers and tech firms on autonomous driving is accelerating, with L3 licensing entering a critical window. Hong Kong-listed autonomous driving stocks combine technological barriers and valuation advantages, particularly those excelling in algorithm R&D and scenario deployment.
2. Red-Chip Return Dividend: Internet and Consumer Sectors
Hong Kong-listed internet platform companies (e-commerce, social media) benefit from domestic consumption recovery and normalized regulatory policies, with year-end earnings previews likely to release positive signals. Meanwhile, offline recovery data in the consumer sector (dining, retail) is improving, making undervalued Hong Kong consumer stocks defensive yet elastic for rebounds.
3. Traditional Cyclical Sectors: Defensive Value of Energy and Finance
Fluctuating oil price recoveries are driving earnings improvements in Hong Kong's energy sector, with high-dividend oil stocks becoming a safe-haven choice for year-end capital. The financial sector (banks, insurance) remains historically undervalued with significant dividend yield advantages, suitable for investors seeking stable returns.

III. Year-End Hong Kong Stock Positioning Strategies and Risk Management

1. Positioning and Timing: Balanced Allocation, Seizing Rotation
Year-end liquidity in Hong Kong stocks is still affected by Western holidays, with rapid sector rotation. A "core + satellite" positioning structure is recommended: core allocations to growth sectors like optical communication and autonomous driving, supplemented by defensive sectors like consumer and finance, avoiding overexposure to single themes.
2. Stock Selection Logic: Earnings Certainty First
Prioritize stocks with clear earnings support and verifiable order execution, avoiding purely speculative plays. For tech growth sectors, focus on the ability to convert R&D into revenue rather than just technological narratives.
3. Risk Management: Beware of External Disruptions
Year-end requires attention to external disruptions such as Fed meetings and U.S.-China trade talks, as well as seasonal liquidity contractions in Hong Kong stocks. Additionally, excessive short-term gains in some sectors may trigger profit-taking, necessitating stop-loss mechanisms.

Hong Kong stocks' year-end recovery is not a broad rally but a structural opportunity driven by industry fundamentals. Investors should focus on tech manufacturing trends and consumer-finance valuation repairs, seizing year-end positioning windows amid sector rotation while managing risks to set the stage for next year's investment rhythm.$Hang Seng Index(00HSI.HK) @Event Master