CITIC Securities: AH premium index continues to decline, reflecting the revaluation of H shares in the low interest rate environment in the mainland.

According to the research report from CITIC Securities, since 2025, the AH premium index has been consistently decreasing, reflecting the shift in mainland policies and the repricing of H-shares under the low interest rate environment for southbound funds. Since the market on "9.24" in 2024, southbound funds have significantly flowed into Hong Kong stocks, with trading volume proportion significantly increasing, indicating the enhanced attractiveness of undervalued leading companies in Hong Kong to mainland funds. Currently, the proportion of southbound and mainland holdings in the AH stock H index has reached 50%, and the large amount of insurance funds buying into the banking sector is the main reason for the downward trend of the AH premium index. Insurance funds have sufficient momentum to allocate to banking H-shares, and the premium of the banking sector AH still has room to decrease, which is expected to continue to depress the index. At the same time, the expansion of high-quality A-shares listing in Hong Kong has widened the downward space of the premium index, improved the liquidity of Hong Kong stocks, alleviated the discounts brought by the lack of liquidity in H-shares, and promoted the narrowing of the valuation gap between the two markets. Overall, the adjustment of mainland policies, changes in the structure of southbound funds, and the continuous listing of high-quality assets jointly drive the continuous decline of the AH premium index, reflecting the trend of improved liquidity and value reassessment in the Hong Kong stock market. In this context, it is recommended to focus on sectors with significant industry trends, high visibility of performance, catalytic scarce assets in the Hong Kong stock market, and sectors with discounts on H shares, including: 1. AI software; 2. Innovative drugs; 3. Non-bank financial institutions; 4. Banking.