Analysis of Valuation Repair Rhythm Between A-Shares and Hong Kong Stocks Under Liquidity Paradox

Although the Federal Reserve has clearly started interest rate cuts and resumed balance sheet expansion in December, long-term U.S. Treasury yields have risen instead of falling, reflecting a scissors gap between liquidity supply and coupon rates. The rise in U.S. Treasury yields means that the market’s expectations for long-term capital return rates have increased, leading to capital withdrawal from growth and high-valued assets, while compressing the risk premium of global risky assets. Currently, the correlation between U.S. stocks and Chinese markets is weakening (the correlation coefficient between S&P 500 and Hang Seng/SSE Composite is only 0.07~0.08), reflecting regional differentiation in global capital allocation [0]. In this scenario, the valuation repair of A-shares and Hong Kong stocks is passively “lagging” behind U.S. stocks—even with the release of policy support, due to the ongoing upward pressure and uncertainty in the U.S. dollar interest rate curve, trading volume and valuations will still be under pressure during the policy wait-and-see period.

Index	Increase Since November 2024	Annualized Volatility	Observation Highlights
Hang Seng Index	+24.2%	23.7%	High sensitivity to capital conditions, high volatility but short duration; offshore structure leads to faster capital flows when U.S. Treasury yields rise, making short-term valuation repair easy but also prone to retracement.
SSE Composite Index	+18.3%	14.2%	Domestic liquidity is policy-driven; when long-term U.S. Treasury yields rise, it is difficult for the People’s Bank of China to ease significantly in sync, but funds seek returns in the local market, so the rhythm of valuation repair depends more on the clarity of domestic policies and the sustainability of liquidity.

From the chart (see attached figure), under the background of Fed rate cuts, the relative performance of A/H shares still lags behind U.S. stocks—Hang Seng and SSE Composite have not formed a synchronous rise, while volatility and daily yield distribution are both higher than U.S. stocks [0]. This indicates that before the international liquidity “scissors gap” is fully repaired, the rhythm of A/H valuation repair still needs to wait for substantial补充 of external liquidity and clear path of internal policies.

1. U.S. Treasury Liquidity Supply Method and Rhythm:
   • If the U.S. Treasury directly injects liquidity (such as repurchasing short-term and medium-term Treasury bonds) or restarts some long-term bond repurchases, the upward pressure on long-term yields can be gradually relieved within 1~2 months. However, if it still waits for QE restart with loose signals, more time will be needed.
   • Currently, U.S. Treasury yields have not reversed significantly, and the above scenarios still need to wait for the signal of “actual liquidity entry”, so it is expected that before the first quarter of 2026, global capital’s risk preference for A/H will still be in the “wait-and-see” stage.

2. A/H Internal Liquidity and Policy Space:
   • China adheres to exchange rate stability, which means monetary policy will still focus on prudence and structural optimization, with limited space for large-scale interest rate cuts or liquidity release in the short term.
   • Hong Kong stocks are expected to benefit first: The close linkage between offshore USD and HKD, and against the background of global funds searching for yields, Hong Kong stocks may rebound earlier than A-shares due to their foreign capital nature. However, due to the need for confirmation of external liquidity, the overall valuation repair still needs a 2~3-month “capital testing” process.

3. Cyclicality and Policy Window:
   • The extension of the year-end policy wait-and-see period means that the rhythm of liquidity release may be delayed until the end of the first quarter or even the second quarter of next year.
   • If long-term U.S. Treasury yields fall within 1~2 months and the Fed starts actual rate cuts (market expectations are not significantly inverted), A/H valuation repair can start in mid-Q1 2026; otherwise, if long-term rates remain high, the repair may be delayed until Q2 or longer.

1. Short-term:
   Focus on U.S. Treasury yield and curve inversion signals, whether the U.S. Treasury starts short-term and medium-term bond repurchases, and the 10-year/2-year spread. As long as long-term rates remain high, A/H funds will still “die at the sight of light”, so it is necessary to carefully control valuation premiums.
2. Medium-term:
   Observe whether the weight industries (finance, technology, etc.) in Hong Kong stocks that are first lit up by foreign capital flows and the policy-based funds in A-shares (such as SOE reform, local fiscal support) can form valuation support in Q1.
3. In-depth Monitoring:
   If liquidity improvement is delayed, it is recommended to use Jinling AI’s “Deep Research Mode” to obtain more detailed industry capital flows, policy themes, bond issuance and repurchase data, and valuation tracking models from securities firm databases, so as to finely adjust position and timing logic.

Under the current liquidity paradox of “Fed rate cuts + rising long-term U.S. Treasury yields”, the valuation repair of A-shares is expected to gradually materialize starting from

, and still needs double confirmation of domestic policies and external liquidity; Hong Kong stocks, due to their foreign capital and USD fund orientation, will theoretically in obtaining tentative upward movement in the early stage of liquidity improvement, but the overall valuation repair still needs of continuous liquidity support to get rid of the volatility caused by the policy wait-and-see period. If the U.S. fails to effectively lower long-term yields in Q1, A/H valuation repair may be delayed until . It is recommended to closely track U.S. Treasury yields, U.S. fiscal operations and A/H capital flows to dynamically adjust strategies, and consider using the Deep Research Mode to obtain more detailed liquidity and valuation indicators.

The attached figure “Comparison Analysis of China, U.S., and Hong Kong Stock Market Performance Under Fed Rate Cut Background” shows the relative performance, volatility, yield distribution and correlation matrix of SPY, Hang Seng Index and SSE Composite Index from November 1, 2024 to December 17, 2025 (X-axis: Date / Y-axis: Relative Performance or Volatility / Unit: Percentage). It can be directly seen that under global liquidity uncertainty, the risk-adjusted performance of Hong Kong stocks and A-shares is still weaker than U.S. stocks, and the correlation between the three is low (especially with U.S. stocks), which exacerbates the time lag of valuation repair. [0]

[0] Jinling API Data