HSBC Private Banking: The target for the Hang Seng Index by the end of next year is 31,000 points, expecting the Federal Reserve to remain steady after a rate cut in December

HSBC Private Banking and Wealth Management's Chief Investment Officer for North Asia, He Weihua, expressed a positive outlook on the return prospects of the Hang Seng Index, expecting a target of 31,000 points by the end of 2026, primarily benefiting from positive market liquidity and profit trends. China's policy focuses on boosting domestic demand, which is expected to support the improvement of corporate profit margins and drive profit growth in 2026. The recovery of the Hong Kong stock market and retail spending, the stability of the residential real estate market, the revitalization of tourism activities, a large number of new stocks preparing to go public, and the positive wealth effect brought about by the rising stock market all contribute to the recovery of consumption in Hong Kong.

HSBC Private Banking and Wealth Management's Chief Investment Officer for Asia, Fan Zhuoyun, believes that artificial intelligence is not in a bubble zone. This year's returns in the U.S. stock market largely stem from profit growth rather than price-to-earnings ratio expansion. The strong profit growth in the U.S. stands in stark contrast to other regions, and she believes the S&P 500 index still has upward potential, likely reaching a new high of 7,500 points by the end of 2026.

She anticipates that the Federal Reserve will cut interest rates by 25 basis points in December, and due to the resilience of the U.S. economic growth, rates may remain unchanged next year. Therefore, as the economic cycle and innovation trends continue, the short-term market declines triggered by concerns over high valuations of technology stocks and the Federal Reserve's policy outlook are expected to be relatively moderate and temporary.

Looking ahead to next year, the bank holds a relatively high allocation to global equities. It maintains a positive outlook on the stock markets of mainland China, Hong Kong, Singapore, South Korea, and Japan, complementing its higher allocation to U.S. stocks. The bank has a relatively high allocation to global investment-grade bonds, high-quality Asian and emerging market corporate bonds, gold, and hedge funds, with core allocations in private equity, private credit, and infrastructure investments to enhance portfolio diversification.

The bank prefers sectors with strong profitability, increasing holdings in global information technology, industrials, communication services, utilities, and financial stocks.

Under the barbell strategy, the bank aims to enhance shareholder returns in Asia by favoring high-quality companies that improve equity returns through high dividends, increased share buybacks, and driving value-accretive mergers and acquisitions. Supported by corporate governance reforms, market consensus predicts that the equity return rate of MSCI Asia should steadily rise from 10.4% in 2024 to 12.1% in 2027