Looking back at 2025, the Hong Kong stock market outperformed expectations,$Hang Seng Index (800000.HK)$and$Hang Seng TECH Index (800700.HK)$with a rise of 30%, leading global major markets. This rally benefited from both the AI industry trend and fundamental improvements, as well as support from favorable internal and external liquidity conditions.
Notably, the market exhibited distinct structural characteristics: a small number of individual stocks contributed to most of the index's gains, sector rotation was frequent, and assets driven by different logics—gold, dividends, and growth—saw simultaneous increases.
Looking ahead to 2026, the market environment will present new features. CICC pointed out that the logic of "excess liquidity chasing scarce assets" will continue, but the credit cycle may shift from recovery to volatility or even deceleration.
2025 Review: A Liquidity-Driven Structural Bull Market
In 2025, the Hong Kong stock market delivered outstanding performance,$Hang Seng Index (800000.HK)$and$Hang Seng TECH Index (800700.HK)$The increase has reached 30%, leading global markets. This bull market has been driven by two main factors: firstly, tangible industrial trends (such as AI technology) and fundamental improvements (for example, fiscal policy efforts driving economic recovery); secondly, the amplification effect of internal and external liquidity narratives (such as 'de-dollarization' and deposit shifts). Notably, market gains have been primarily contributed by valuation expansion, particularly a decline in risk premiums. For instance, almost all of the gains in Hang Seng Tech can be attributed to valuation increases.
In 2025, Hong Kong stocks exhibit several distinct characteristics:
Prominent structural market trends: a few leading stocks (e.g., $TENCENT (00700.HK)$、$BABA-W (09988.HK)$) accounted for 70% of the index gains, while about half of the individual stocks underperformed the index.
Significant sector rotation: internet stocks led the gains in the first quarter, shifted to new consumption in the second quarter, innovative drugs performed strongly in the third quarter, and returned to internet stocks in the fourth quarter. Investors who failed to grasp the rhythm might face losses.
Capital inflows boost: Southbound capital inflows reach a record high, while foreign capital allocation shows divergence. Asia-Pacific funds increase their allocation to China, whereas global funds remain underweight.
Macroeconomic logic: Excess liquidity chasing scarce assets
The report notes that the core theme of the Chinese market over the past two years has been the pursuit of 'scarce return-generating assets' amid 'excess liquidity.' The surplus liquidity stems from the stagnation of funds against the backdrop of credit contraction (e.g., savings reaching new highs), while scarce assets rotate alongside the credit cycle:
During credit contraction, bonds and dividend-paying assets are favored;
As credit partially recovers, this manifests in structural trends such as internet and new consumer sectors;
When credit fully recovers, a comprehensive bull market may emerge.
This combination leads to the coexistence of deflationary and inflationary phenomena: overall economic demand remains weak, but funds concentrate in specific areas (e.g., AI, luxury properties), driving up asset prices. The critical judgment for future market performance hinges on two factors: whether the liquidity environment will persist, and whether scarce assets can expand to a broader range.
Liquidity environment: Abundant but requires rational assessment
Looking ahead to 2026, the ample liquidity situation is expected to continue, but excessive optimism should be avoided:
Macro liquidity: The M2-to-GDP ratio remains high, interest rates are at historical lows, and the issue of fund stagnation persists.
Micro liquidity: The 'activation' of deposits is driving capital inflows into the market, but the intensity of inflows and market performance are interdependent. Constraints such as income expectations and debt pressure need to be monitored.
External liquidity: The Fed's rate-cutting cycle supports Hong Kong stocks, but uncertainties may arise in the second half of the year; 'de-dollarization' remains a localized phenomenon, with high thresholds for foreign capital repatriation.
Overall, liquidity remains the cornerstone of the market, but reliance solely on capital inflows faces a 'ceiling.' Hong Kong stocks benefit more from external easing, while mainland China's A-shares are more directly driven by domestic capital inflows.
Diffusion of Scarce Assets: Challenges Amid Credit Cycle Volatility
By 2026, the credit cycle may shift from recovery in 2025 to volatile deceleration, making it difficult for scarce assets to expand significantly. The report categorizes credit demand into three types:
Emerging demand (e.g., AI technology): Maintains high growth momentum, but expectations are already elevated.
Traditional demand (e.g., real estate, consumption): Issues such as weak income expectations and cost inversion remain unresolved, leading to insufficient recovery momentum.
Fiscal expenditure: Limited in scale, with a stronger focus on the technology sector.
Policy support is key to upside risks. If greater emphasis can be placed on areas such as income expectations, social security, and debt resolution—not merely on the stock market and infrastructure—this could drive a recovery in the credit cycle. Downside risks include the bursting of the U.S. equity AI bubble or an escalation of Sino-U.S. tensions.
Market Trends: Limited Index Upside, Structural Opportunities Prevail
Based on profitability and valuation analysis, the report adopts a cautious stance on the upside potential of Hong Kong stock indices by 2026:
Profit growth: Under the baseline scenario, overall profit growth is projected at 3% (6-7% for non-financial sectors), below market expectations.
Valuation levels: Current valuations are no longer inexpensive, with risk premiums at historical lows. Further upward movement in the index will require earnings-driven growth rather than valuation expansion.
Point forecasts:
Baseline scenario: The Hang Seng Index range is expected to be 28,000–29,000 points (3-4% earnings growth + structural valuation improvement).
Optimistic scenario: 31,000 points (policy-driven surprise boosting earnings growth to 6-7%).
Pessimistic scenario: 21,000 points (external risk shocks).
Editor/melody
