"Big Banks" Huayan: Confidence in the Hong Kong market is increasing, optimistic about sectors such as banking and real estate

HSBC Global Investment Research report indicates an increased confidence in the Hong Kong market, driven mainly by growth recovery, ample liquidity, reasonable valuations, and attractive dividends.

HSBC Securities' Head of Asia Pacific Strategy, Lin Chuan Ying, stated that the bank has maintained an optimistic view on the Hong Kong market for a long time. With key support factors solidifying, the bank is more confident. One emerging momentum comes from the real estate market, which is at a turning point, with property prices expected to rise by 5% in 2025, reversing the cumulative decline of 25% over the past two years. The bank's real estate team has recently raised this year's growth forecast to 7%. Meanwhile, as residents' confidence in the property and stock markets rebounds, the growth rate of time deposits has slowed. Consumer momentum is also evident—retail sales have grown by over 6% year-on-year in the past three months, reflecting an increase in residents' willingness to consume. The gradual stabilization of the residential market, recovery of consumer confidence, and growth in consumer spending create a positive cycle that benefits corporate profit growth.

The report states that Hong Kong is reshaping its role as China's gateway to the world, with increasing optimism in the stock market. Last year, the FTSE Hong Kong Index recorded its strongest return since 2017, primarily driven by abundant liquidity, and this momentum is expected to continue—as households in mainland China and Hong Kong continue to increase their stock allocations. The IPO market is regaining vitality, with nearly 350 companies expected to go public by 2026. Although the scale is large, the bank believes the impact on secondary market liquidity is limited. New listings provide investors with opportunities to invest in advanced technology, healthcare, new energy, and new consumption sectors.

As the residential real estate market warms up, corporate profits are gradually improving. The banking sector continues to benefit from growth in wealth management, mortgage demand, and a high-interest-rate environment. Overall, these factors could drive profit growth of 10% in 2026, and with improving macroeconomic conditions, the upside risks are significant, with recent upward revisions in profit forecasts. Although the Hong Kong market experienced its first valuation expansion in five years last year, current valuations remain at reasonable levels. High dividend yields are particularly attractive in the low-interest-rate environment in mainland China, making sectors like banking and real estate more valuable for allocation compared to their mainland counterparts due to profit improvements or higher yields.

The bank maintains an overweight rating on the Hong Kong stock market, setting a target of 1,060 points for the FTSE Hong Kong Index by the end of 2026, implying a 14% upside for the year