In-depth Analysis of China and Hong Kong Stock Markets Under the Global Liquidity Paradox

Market data in December 2025 shows an interesting phenomenon: the

is reshaping global capital flows. According to my analysis, Hong Kong stocks have significantly outperformed A-shares— the Hang Seng Index rose 28.87% year-to-date, while A-shares only edged up 0.87%[0].

The Federal Reserve announced a 25 basis point rate cut to 3.5%-3.75% in December 2025, but notably, three committee members voted against this decision, indicating intensified internal divisions[2]. More crucially,

, reflecting market concerns about inflation and debt sustainability.

Behind this ‘rate cut but not loose’ phenomenon is the

facing the Fed:

• Interest rate policy
  : Need to cut rates to stimulate the economy
• Exchange rate stability
  : Excessive weakening of the dollar affects global status
• Debt sustainability
  : Too high interest rates exacerbate government debt burden

From a technical perspective, this liquidity paradox has caused:

• Short-end liquidity improvement
  : Interbank market liquidity is relatively abundant
• Long-end liquidity tightening
  : Bond yields rise, long-term funding costs increase
• Risk preference differentiation
  : Capital tends to flow to assets with higher certainty

Based on current market data and technical indicator analysis:

• Volatility characteristics
  : A-share volatility this year is relatively low, indicating the market is in a state of accumulation
• Trading volume changes
  : A-share trading volume is relatively shrinking, showing strong wait-and-see sentiment
• Accelerated sector rotation
  : Lack of sustained leading sectors, with capital entering and exiting quickly

1. Short-term (1-3 months)
   : Volatility and adjustment continue
   • Overseas liquidity environment remains unclear
   • Domestic policy effects take time to transmit
   • Seasonal tightness in capital conditions at year-end

2. Mid-term (3-6 months)
   : May see a turning point
   • U.S. policy path becomes clearer
   • China’s policy toolbox opens further
   • Capital conditions are expected to improve after the Spring Festival

3. Long-term (6-12 months)
   : Enter a new upward cycle
   • Global liquidity environment rebalances
   • China’s economic structural adjustment shows initial results
   • Valuation repair market starts

• Shibor interest rate trend
• Social financing growth rate changes
• Foreign exchange reserve changes

• Usage of central bank monetary policy tools
• Fiscal policy implementation and rhythm
• Regulatory policy adjustment direction

Data shows Hong Kong stocks performed prominently in 2025, which is not accidental:

• Valuation advantage
  : Lower valuation compared to A-shares and U.S. stocks
• Liquidity improvement
  : Increased demand for overseas capital allocation
• Policy benefits
  : Interconnection mechanisms continue to improve

• Year-to-date gain of 45.43%, but has pulled back recently[0]
• P/E ratio of 23.94x, ROE reaches 20.59%[0]
• Financially healthy with abundant cash flow

• Year-to-date gain of 74.88%, obvious valuation repair[0]
• Analyst target price of $190, with 27.9% upside potential from current levels[0]
• Undergoing three major strategic transformations, focusing on AI and cloud computing[4]

• Relative Strength Index (RSI) enters oversold zone
• Volume expansion indicates capital absorption
• Stabilization at key support levels

• Earnings expectations adjusted to appropriate levels
• Industry policy environment improved
• Company fundamentals continue to be positive

• Focus on industries benefiting from policy support
• Choose leading companies with abundant cash flow and reasonable valuations
• Avoid high-leverage, cash-strapped enterprises

• Big consumer sector: Large room for valuation repair
• High-end manufacturing: Strong policy support
• New energy: High certainty of long-term growth

• Tech leaders
  : Tencent, Alibaba, etc., benefiting from AI development and digital transformation
• Consumer leaders
  : Benefiting from consumption upgrade and policy support
• Financial leaders
  : Valuation repair + high dividend yield

• Build positions in batches to avoid chasing highs
• Pay attention to earnings performance during earnings season
• Dynamically adjust position structure

• Geopolitical risk
  : Sino-US relations are volatile
• Policy risk
  : Regulatory policies tighten more than expected
• Liquidity risk
  : Large outflow of overseas capital

• Diversify investments to reduce single risk exposure
• Maintain an appropriate cash position to seize opportunities
• Closely monitor policy trends and market sentiment

Based on current global liquidity environment and market data analysis, I believe:

1. The A-share volatility and adjustment period is expected to last 3-6 months
   , which is both a rational response of the market to changes in the liquidity environment and a necessary process to accumulate momentum for the next round of rise.

2. Hong Kong stock pullbacks do provide strategic allocation opportunities
   , especially high-quality tech and consumer leaders. Compared to A-shares, Hong Kong stocks are more attractive in terms of valuation, liquidity, and company quality.

3. 2026 will be an important turning point for Chinese assets
   , as the U.S. policy path becomes clearer and China’s economic structural adjustment deepens, China and Hong Kong stock markets are expected to be driven by both valuation repair and earnings growth.

• AI and digital transformation
• Consumption upgrade and service industry recovery
• High-end manufacturing and industrial upgrading
• New energy and green transformation

Investors should be patient, seize structural opportunities in volatility, and fully prepare for the upcoming upward cycle.

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[0] Jinling API Data - Market data and company financial information
[1] Yahoo Finance - “Full Text of Fed December Statement” (https://hk.finance.yahoo.com/news/fed-12月聲明全文-190732759.html)
[2] Yahoo Finance - “Fed’s Third-in-Command Dovish: Still Room to Cut Rates in Short Term; December Rate Cut Probability Breaks 70%” (https://hk.finance.yahoo.com/news/fed三把手放鴿-短期仍有調降利率空間-12月降息機率突破七成-133451285.html)
[3] NAI500 - “Interpreting Alibaba’s Three Major Strategic Shifts in 2025” (https://nai500.com/blog/2025/12/interpreting-alibabas-three-major-strategic-shifts-in-2025/)
[4] The Motley Fool - “Alibaba in 2025: Three Shifts That Investors Should Know Before Entering 2026” (https://www.fool.com/investing/2025/12/16/alibaba-in-2025-three-shifts-that-investors-should-know/)