---
title: "\"Outlook\" U.S. interest rates, national policies, and profit momentum influence the future of Hong Kong stocks. Brokerages expect the Hang Seng Index's \"most bullish\" target to be 34,000 points"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/271174834.md"
description: "Hong Kong stocks continued to rise in 2024, benefiting from policy support and the development of AI technology, with an annual increase of over 17%. Despite facing U.S. tariff policies and market volatility, northbound capital inflows continued, pushing the Hang Seng Index to 27,381 points in October. Brokers expect Hong Kong stock valuations to expand due to improved liquidity, and looking ahead to 2026, attention should be paid to the pace of Federal Reserve interest rate cuts and corporate profit growth momentum. Next year will mark the beginning of China's 14th Five-Year Plan, and the market anticipates favorable policies"
datetime: "2025-12-31T05:18:34.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/271174834.md)
  - [en](https://longbridge.com/en/news/271174834.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/271174834.md)
---

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# "Outlook" U.S. interest rates, national policies, and profit momentum influence the future of Hong Kong stocks. Brokerages expect the Hang Seng Index's "most bullish" target to be 34,000 points

Hong Kong stocks have continued to rise this year, maintaining the upward momentum since the "policy combination punch" launched in mainland China at the end of September 2024, with market sentiment significantly improving. The Hang Seng Index reversed its four-year decline in 2024, rising over 17% for the year. This year, driven by the rapid advancement of artificial intelligence technology, particularly with the emergence of the DeepSeek large model, and major tech giants like Alibaba (09988.HK) announcing large-scale AI investment plans, market enthusiasm for the "AI thematic narrative" has increased, attracting continuous inflows from northbound capital. In the first four months of 2025, the average monthly net inflow from northbound capital ranged from HKD 125.5 billion to HKD 166.6 billion.

Although the announcement by U.S. President Trump in early April to implement "reciprocal tariffs" on multiple countries caused market turbulence, the mainland's introduction of "anti-involution" policies boosted corporate profits and confidence. Subsequently, in early May, China and the U.S. reached a consensus and mutually reduced tariffs, gradually alleviating concerns about "decoupling." In a low-interest-rate environment, funds chased high-quality and growth-potential stocks, with northbound capital's net inflow in July exceeding HKD 100 billion. The Hang Seng Index rose to 27,381 points on October 2, an increase of over 36% compared to the end of last year. At the end of October, the leaders of China and the U.S. reached a "temporary ceasefire for one year" agreement at the summit in Busan, South Korea. Despite short-term market fluctuations due to the controversy over the "AI bubble" in the U.S. and interest rate hikes by the Bank of Japan, the Hang Seng Index still rose nearly 28% for the year.

Brokerages generally believe that the expansion of Hong Kong stock valuations this year is mainly driven by improved liquidity and risk appetite, forming what is known as a "water bull market." The performance of industry sectors has shown divergence from macroeconomic conditions, with assets in AI technology, innovative pharmaceuticals, precious metals, and new energy being the most sought after by funds. Looking ahead to 2026, for Hong Kong stocks to rise further, the market needs to pay attention to the pace of interest rate cuts by the Federal Reserve (which is expected to have high uncertainty in the second half of the year), verify the growth momentum of corporate profits in Hong Kong stocks, particularly whether AI+ technology can become a new growth point, whether profits in various industries can benefit from the "anti-involution" policy breakthrough, and whether the mainland housing market and consumption can recover. From the perspective of capturing macroeconomic cycles through thematic investments, credit growth and PPI trends remain key observation indicators. Next year will mark the beginning of China's "14th Five-Year Plan," and the National People's Congress will review specific national policy content. Additionally, U.S. President Trump may visit China in April next year, which could lead to market expectations for "spring window" trading opportunities. A comprehensive forecast from 14 brokerages suggests that the target for the Hang Seng Index in 2026 will range from 23,500 to 34,000 points, with potential fluctuations ranging from a decline of over 8% to an increase of over 32%.

【Expecting moderate corporate profit growth, market observes the direction of China-U.S. relations】

CICC stated that under the baseline assumption, the further momentum for Hong Kong stocks next year is more likely to come from profit recovery rather than solely relying on valuation and risk premium expansion. However, from a profit perspective, if the overall credit cycle lacks significant upward momentum, a substantial overall improvement is also difficult to expect. The bank estimates that corporate profits are expected to grow moderately by 3% to 4% next year, and the overall market may have limited space at the index level, with the structural prosperity remaining the main line. The biggest variable in this regard comes from changes in funds and investors, which will directly affect the pricing of funds' costs on valuations. Specifically, in terms of point calculations: (1) Baseline scenario: Profit growth of 3-4% and sentiment driven by the structural prosperity main line, the Hang Seng Index's central point rises to 28,000-29, Around 000 points. (2) Optimistic scenario: If the sentiment of major structures returns to the year's high and earnings achieve a growth of 6-7%, it is expected to support the Hang Seng Index to rise to around 31,000 points. This assumes that policy efforts exceed expectations, driving earnings growth of 6-7%, pushing the risk premium of cyclical and broad consumption sectors back to recent lows, combined with a dovish stance from the Federal Reserve leading to foreign capital inflows, with southbound capital accounting for 30%, which is expected to push the Hang Seng Index to break through 31,000.

Morgan Stanley stated in last month's report that the Hang Seng Index is expected to be a stable year in 2026, estimating moderate upside for the index, accompanied by moderate earnings per share growth and valuations stabilizing at a high range, as China regains its footing in the global tech race and U.S.-China trade tensions ease. The bank set a baseline scenario target for the Hang Seng Index at 27,500 points by December 2026, equivalent to a forecast price-to-earnings (PE) ratio of 11.5 times for next year, expecting corporate earnings per share to grow by 6%; Morgan Stanley gives a "bull market scenario" target for the Hang Seng Index of 34,700 points by the end of next year, equivalent to a PE ratio of 13.4 times by December next year, expecting earnings growth of 8% next year.

【Haitong expects the Hang Seng Index to reach 34,000, anticipating the boost from the 14th Five-Year Plan】

Haitong International published a report indicating that in the context of accelerated technological transformation, 2025 is the "warming-up" phase of the mainland bull market, driven by both liquidity and earnings, with technology and dividends as the two main lines. It is expected that 2026 and 2027 will enter the main rising phase of the bull market. The forecast for the Shanghai Composite Index in 2026 is expected to rise to 5,600 points, and the Hang Seng Index to 34,000 points (the most optimistic target level among brokerages). The bank pointed out that the core drivers come from the enhancement of comprehensive national strength, improvement in economic fundamentals and corporate earnings, and continuous capital inflows.

Regarding southbound capital inflows being one of the main forces driving the rise of Hong Kong stocks this year, the net inflow reached 1.4 trillion yuan. Cathay Haitong Securities published a report on Hong Kong stocks earlier this month, estimating that net inflows of southbound capital will exceed 1.5 trillion yuan in 2026, mainly driven by institutions such as public funds and insurance capital entering the market. The bank estimates that mainland public funds are expected to flow into Hong Kong stocks about 400 billion yuan (200 billion yuan each from active and passive public funds), expects mainland private equity funds to flow into Hong Kong stocks 300 billion yuan next year, and estimates that mainland insurance capital is expected to flow into Hong Kong stocks 400 billion yuan next year.

HSBC Private Banking and Wealth Management North Asia Chief Investment Officer He Weihua stated at the beginning of December that he holds a positive view on the return prospects of the Hang Seng Index, expecting a target of 31,000 points by the end of 2026, mainly benefiting from positive market liquidity and earnings trends. China's policies focus on boosting domestic demand, which is expected to support the improvement of corporate profit margins and drive earnings growth in 2026. The recovery of the Hong Kong stock market and retail spending, the stability of the residential real estate market, the revival of tourism activities, a large number of new stocks preparing to go public, and the positive wealth effect brought by the rising stock market all provide support for the recovery of consumption in Hong Kong. HSBC Private Banking and Wealth Management Asia Chief Investment Officer Fan Zhuoyun stated that due to the resilience of the U.S. economic growth, interest rates may remain unchanged next year \[Wen Jie estimates the market will be low first and then high, Tan Langwei expects the Hang Seng Index target to be 30,000 points\]

UBS published a strategy report on the Chinese market last month, stating that it predicts the Chinese stock market will see positive performance again next year, mainly due to the innovative development of AI; the relaxed policy environment for private enterprises and the capital market; as well as potential capital inflows from domestic and foreign institutional investors. However, the driving force of these favorable factors has already been reflected significantly by 2025, making it difficult for valuation multiples to expand significantly again. The bank expects that the stock price performance in 2026 will be more driven by earnings growth. The bank sets the Hang Seng Index target at 30,000 points for next year, corresponding to a predicted price-to-earnings ratio of 13.5 times, with an expected earnings growth of 8% per share for the index next year.

Wen Jie, a director of the Hong Kong Stock Analysts Association, stated in an interview that the target for the Hang Seng Index in 2026 is 28,980 points, based on earnings per share of 2,520 HKD, with an expected earnings growth of 9.8% next year, targeting a price-to-earnings ratio of 11.5 times. He believes that next year's stock market focus will be on earnings performance, with the economic and policy impacts of China and the U.S. affecting liquidity and valuations, and these two factors will dominate the market. He also mentioned that based on the annual volatility of the Hang Seng Index being 6,000 to 8,000 points, there is a chance to see a low of 21,000 to 22,000 points within the year, and at the current level, it may not be very worthwhile, suggesting investors to deploy in stages. He also expects that Hong Kong stocks will peak in the second half of the year, needing to see the U.S. cut interest rates two to three times and China introduce policies to stabilize the economy, with a greater chance of seeing an annual high in the fourth quarter. He also noted that the Hang Seng Index rose from a low of 19,260 points in April to 27,381 points in early October, with no significant pullback in the past two months. At this stage, if it rises again to 28,000 to 29,000 points, the fundamental factors are lacking, and he does not rule out a slight rise in the first quarter of 2026, but expects a pullback in the second and third quarters, hoping for another rise in the fourth quarter.

Tan Langwei, co-director of Fu Chang Securities, stated in an interview that the Hang Seng Index has returned to a bull market since the fourth quarter of 2024, ending the decline of the past four years. He believes that the outlook for Hong Kong stocks in 2026 remains optimistic as long as the Hang Seng Index and the Hang Seng Tech Index can stabilize at 23,500 points and 5,200 points, respectively, maintaining the bull market pattern. However, he reminds that although Hong Kong stocks have shown an upward trend for most of this year, the fourth quarter is expected to consolidate sideways, predicting that next year may first undergo significant consolidation before turning strong, with a potential "low first, high later" pattern. He expects the target for the Hang Seng Index in 2026 to be 30,000 points, with the tech index aiming for 8,000 points.

As for the U.S. stock market, Tan Langwei believes the consolidation will be greater than that of Hong Kong stocks. The main reasons include cooling expectations for interest rate cuts, a weakening job market, and corporate earnings struggling to support high valuations. At the same time, there is uncertainty regarding the new Federal Reserve chairman's stance on interest rates. He predicts that based on the current economic conditions, the Federal Reserve may only cut rates once next year, or even maintain the current rates, with the cut potentially lower than market expectations, which is likely to bring greater volatility to the U.S. stock market. (ta/w/t)

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