Citi remained cautiously optimistic on the outlook for the China equity market in 2H26, favoring the tech and export sectors, and upgraded the insurance sector from Neutral to Overweight. The broker forecast insurers to benefit from higher investment income from equities and inflows from bank deposits into insurance products.

Citi set its end-2026 targets for the HSI, CSI 300 Index and MSCI China Index at 29,600 (down 1.3% from the previous 30,000), 5,600 and 92.0, respectively, and introduced a 1H27 target of 30,500 for the HSI. Given the heavier weighting in tech stocks and more ample liquidity in the A-share market, Citi preferred A-shares to H-shares in 2H26.

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In terms of sector allocation, Citi maintained Overweight on the tech, basic materials, healthcare and internet sectors, but lowered the weighting of the internet sector by 5.3 ppts to 36.5% owing to slowing earnings growth. The broker also raised the weighting of the financial sector by 1.6 ppts to 12.1%, citing strong IPO pipelines and robust market turnover in Hong Kong.

Citi noted that its 2026 EPS growth forecast for the HSI accelerated to 9.9% YoY, stemmed from the energy and raw materials sectors, while forecasts for the tech, internet and automobile sectors were revised down. XIAOMI-W (01810.HK)  -0.240 (-0.800%)    Short selling $1.31B; Ratio 29.467%   , BABA-W (09988.HK)  +0.600 (+0.472%)    Short selling $1.50B; Ratio 14.413%   and MEITUAN-W (03690.HK)  -2.550 (-3.135%)    Short selling $1.32B; Ratio 25.004%   were identified as the main contributors to lower earnings adjustments.

At the stock level, Citi updated its Top Buy list for H-shares, retaining TENCENT (00700.HK)  -2.400 (-0.544%)    Short selling $939.48M; Ratio 6.551%   (TP HKD783), AIA (01299.HK)  -1.750 (-2.034%)    Short selling $954.26M; Ratio 29.594%   (TP HKD103), HENGRUI PHARMA (01276.HK)  -1.700 (-2.771%)    Short selling $32.45M; Ratio 14.659%   (TP HKD134) and Trip.com Group Limited (TCOM.US)      (TP USD82). It added MMG (01208.HK)  +0.420 (+4.595%)    Short selling $57.69M; Ratio 19.650%   (TP HKD11.2), CICC (03908.HK)  +0.680 (+3.407%)    Short selling $34.27M; Ratio 7.414%   (TP HKD27.66), MONTAGE TECH (06809.HK)  -9.800 (-2.077%)   (TP HKD305) and ASMPT (00522.HK)  +20.000 (+10.834%)    Short selling $269.56M; Ratio 14.267%   (TP HKD180), replacing certain hardware names and Zijin Mining.

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In addition, Citi analyzed the potential impact of easing Middle East conflicts on Hong Kong-listed stocks. Downstream consumption, industrial and utilities names such as SHENZHOU INTL (02313.HK)  +0.360 (+0.778%)    Short selling $27.70M; Ratio 10.432%   , YUE YUEN IND (00551.HK)  +0.010 (+0.069%)    Short selling $6.54M; Ratio 24.811%   , HENGAN INT'L (01044.HK)  -0.140 (-0.565%)    Short selling $20.69M; Ratio 33.721%   , POP MART (09992.HK)  +3.100 (+2.060%)    Short selling $302.57M; Ratio 9.891%   , SAMSONITE (01910.HK)  -0.040 (-0.273%)    Short selling $3.30M; Ratio 5.818%   , CTF SERVICES (00659.HK)  -0.190 (-2.275%)    Short selling $549.23K; Ratio 3.140%   and ENN ENERGY (02688.HK)  -1.300 (-2.249%)    Short selling $24.09M; Ratio 5.509%   may benefit from lower energy and logistics costs.

By contrast, auto stocks including BYD COMPANY (01211.HK)  +2.050 (+2.238%)    Short selling $849.07M; Ratio 27.970%   , GEELY AUTO (00175.HK)  -0.190 (-0.977%)    Short selling $169.34M; Ratio 16.948%   and GWMOTOR (02333.HK)  -0.100 (-0.914%)    Short selling $9.11M; Ratio 6.950%   may face pressure as ebbing oil prices could weaken demand for NEVs.

Citi's H-share Top Sell list includes HUANENG POWER (00902.HK)  +0.050 (+0.763%)    Short selling $22.01M; Ratio 13.968%   (TP HKD4.6), CHINA RES POWER (00836.HK)  +0.180 (+0.892%)    Short selling $129.11M; Ratio 31.685%   (TP HKD17.5), HUISHANG BANK (03698.HK)  -0.030 (-0.598%)    Short selling $7.05M; Ratio 7.260%   (TP HKD4), BYD ELECTRONIC (00285.HK)  +1.780 (+6.768%)    Short selling $118.41M; Ratio 24.093%   (TP HKD22.6), SJM HOLDINGS (00880.HK)  -0.040 (-2.116%)    Short selling $5.12M; Ratio 31.006%   (TP HKD1.8), CHERVON (02285.HK)  -0.310 (-1.889%)    Short selling $2.44M; Ratio 13.880%   (TP HKD17.5) and CR MEDICAL (01515.HK)  +0.070 (+2.778%)    Short selling $1.19M; Ratio 16.401%   (TP HKD2.6).
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-05-26 16:25.) (Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)

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