In 2025, the A-share market delivered a fairly solid "report card," with the Shanghai Composite Index remarkably reclaiming the 4,000-point level and the total market capitalization historically surpassing the 100 trillion yuan milestone, charting a course of "slow bull" growth. Over in the Hong Kong market, the Hang Seng Index surged over 28% for the year (as of Dec 29, 2025), advancing through a path marked by twists and turns—a strong first-quarter rally, followed by a second-quarter adjustment, another uptrend from July to October, and a return to volatility by year-end. This volatility has left many investors questioning: Is the current fluctuation the end of the rally or the starting point for a new round of strategic positioning?
Against this backdrop, the views of prominent institutions such as UBS, Standard Chartered, HSBC, and Guosen Securities warrant attention. Far from turning pessimistic due to short-term volatility in Hong Kong stocks, these institutions, taking a longer-term perspective, forecast that the Hang Seng Index has the potential to break through the 30,000-point barrier in 2026.
With market sentiment currently leaning cautious, what are the key factors underpinning these optimistic predictions?
If we shift our focus away from short-term market fluctuations and concentrate on the deep-seated structure and long-term drivers of the Hong Kong stock market, we find that the forces supporting an upward trajectory for Hong Kong stocks in 2026 remain robust.
Firstly, the Hong Kong market offers a unique bundle of scarce assets not available in the A-share market, particularly leading companies in sectors like technology, biopharmaceuticals, new economy, and internet. For investors seeking to fully participate in the dividends of China's industrial upgrade and the development of "new quality productive forces," the Hong Kong market is an essential destination.
Secondly, liquidity in the Hong Kong market is continuously improving, driven by both internal and external forces. Domestically, southbound capital achieved a record net inflow exceeding 1.4 trillion yuan this year, not only providing substantial buying support but also demonstrating the confidence of mainland investors in the long-term allocation value of Hong Kong stocks. Externally, as major global central banks trend towards monetary policy easing, this is expected to attract renewed scrutiny and potential capital回流 back into the Hong Kong market.
Finally, Hong Kong stocks are trading at very compelling "prices." The deep correction over the past few years has accumulated significant room for valuation repair, especially in sectors aligned with new quality productive forces. Currently, the Hang Seng Tech Index trades at a price-to-earnings (P/E) ratio of approximately 23x, which is not only within its own historical undervalued zone but also appears more attractive compared to the US Nasdaq 100 (P/E ~36x) and the A-share ChiNext Index (P/E ~41x).
Looking back at the volatile ascent of the Hong Kong stock market in 2025, the primary driving force was "valuation repair," which can be understood as a recovery from extreme pessimism, pushing stock prices back towards reasonable value. Simultaneously, the market rally displayed pronounced structural characteristics, with sectors like technology, pharmaceuticals, and non-ferrous metals contributing the bulk of the gains. Entering 2026, after a round of valuation repair, the market is expected to evolve in a more complex yet healthier direction: attention will shift not only to valuation elasticity but also to earnings improvement. The ability of companies to deliver solid, impressive earnings will become the key determinant for sustained stock price appreciation.
For investors, identifying and capturing these structural opportunities remains the crux of successful investing, although the difficulty level is likely to increase. During this period, I have particularly focused on several directions that may encapsulate the structural opportunities within the 2026 Hong Kong market:
(1) Hard Tech: This direction requires little explanation. To capture the opportunities presented by China's industrial transformation and upgrade, one inevitably turns to "hard tech" centered on semiconductors and high-end manufacturing. Whether driven by the massive computing power demands unleashed by the AI explosion or the national strategy for industrial self-sufficiency and control, this sector is endowed with long-term, certain growth momentum.
(2) Internet: Following years of regulatory development, the familiar internet giants have largely moved beyond their phase of rampant growth, entering a new stage characterized by stable profitability and high-quality development. A bigger narrative for 2026 is the transition of AI from pure technology to large-scale commercial application, potentially opening up new growth avenues for these internet behemoths. Bolstered by the dual tailwinds of economic recovery benefits and AI empowerment, this sector is poised for a potential value re-rating.
(3) Innovative Drugs: This sector already showed promise in 2025. Taking the Hang Seng Stock Connect Innovative Pharma Select Index (HSSCPB) as an example, it accumulated a gain of 69.1% year-to-date (as of Dec 29, 2025). The investment thesis for Hong Kong-listed innovative drug companies will become even more robust in 2026: on one hand, industry valuations remain at historically low levels; on the other hand, after years of R&D accumulation, domestic innovative drug companies are seeing their core products enter the commercialization scale-up or successful overseas expansion phase, approaching an inflection point in profitability. Under the potential "double boost" of valuation expansion and earnings improvement, this sector offers significant upside potential.
I have compiled a set of handy ETF tools that correspond precisely to the three Hong Kong stock sectors discussed above:
The Hong Kong Information Technology ETF (159131) acts like a highly precise "specialized drill bit," specifically targeting opportunities in hard tech areas like chips and semiconductors, closely tracking the trends in AI computing demand and the certainty of domestic chip substitution. Its underlying index composition is approximately 70% hardware and 30% software, with its top holding, SMIC, accounting for over 15%.
The Hong Kong Internet ETF (513770, OTC Link 017126) is akin to a boarding pass, allowing investors to embark on the "Chinese Internet Giants" vessel and share in the dividends of technological development under the AI wave. It tracks the CSI Hong Kong Stock Connect Internet Index, which focuses on Hong Kong-listed technology and internet leaders. Its top ten holdings include companies involved in AI cloud computing, large language models, and various AI applications (e.g., Alibaba, Tencent, Xiaomi, etc.), collectively accounting for over 73% weighting. Currently, this index trades at a P/E ratio of around 24x, representing a rare valuation洼地 within the global tech landscape. Furthermore, this ETF boasts an AUM exceeding 12 billion yuan, providing investors with excellent liquidity support.
The Hong Kong Stock Connect Innovative Pharma ETF (520880, OTC Link 025221) resembles a sharp "assault team." The Hang Seng Stock Connect Innovative Pharma Select Index it tracks is characterized by its high "purity," intensely focusing on the most growth-potential, R&D-driven biotech companies, excluding CXO firms. Its top ten holdings account for over 70% weighting, making it a powerful tool for pursuing high growth elasticity.
In summary, supported by three key pillars—attractive valuations, the concentration of scarce assets, and improving liquidity—Hong Kong stocks in 2026 still possess room for further appreciation, with particularly prominent structural opportunities in sectors like internet, hard tech, and innovative drugs. However, it's crucial to recognize that Hong Kong stocks have no daily price limits, and the aforementioned three sectors are characterized by high volatility, making them potentially more suitable for investors who can tolerate higher risks.
For those interested in participating, a prudent suggestion is: when constructing an investment portfolio, if you are bullish on any or all of the above sectors, consider using the corresponding sector ETFs or their OTC feeder funds as "satellite" allocations. These can be combined with more stable "core" assets (such as broad-based indices, high-dividend-yield assets, etc.) to help control the overall portfolio volatility. In terms of execution, avoid making a single, large allocation; instead, adopting a strategy of分批 and分散布局 can help smooth out costs and manage risk more effectively.
Risk Warning: The above content is solely an objective analysis based on publicly available information. Past performance is not indicative of future results. Before making any investment decisions, investors should carefully review the fund's legal documents, fully understand the product's characteristics and risks, and make prudent decisions based on their own risk tolerance. Investing involves risks; caution is advised when entering the market.
