In 2025, an investment earning 20% is considered "qualified." Next year's QE is not impossible. Li Shengyang: Focus on three types of stocks

In the blink of an eye, 2025 is nearing its end. This year can be described as a "laying down to win" year for global stock markets; as long as investors hold major indices or moderately diversified allocations, they can easily achieve considerable returns. The Hong Kong stock market has performed particularly well, with the Hang Seng Index rising 28% for the year, the Technology Index up 23%, and the National Enterprises Index also increasing by 22%. If one invests evenly across the three major indices, the average return is about 25%. Although the U.S. stock market has been stable, it is relatively less impressive, with the Dow Jones Industrial Average rising 14%, the S&P 500 Index up 18%, and the Nasdaq Index increasing by 22%, resulting in an average return of about 18% for balanced allocations. If Hong Kong and U.S. stocks each account for half, the overall return of the portfolio should be above 20%, which has become a reasonable benchmark. If investment returns fall below this level, one may need to reflect on whether the stock selection or allocation strategy is appropriate, or even humbly admit shortcomings. Tracking National Stock Market ETFs Averaging 33% Profit The rise in the U.S. stock market is highly concentrated among a few tech giants, with the average return of the 500 components of the S&P 500 being only 13%, and the median even lower at 7%. About 40% of individual stocks recorded declines for the year, indicating high difficulty in stock selection, with many AI and cryptocurrency concept stocks experiencing significant pullbacks. In contrast, the situation in the Hong Kong stock market is more balanced, with the 89 components of the Hang Seng Index having an average return close to the index's increase, and a median of 16%, with only 25% of components declining, benefiting from originally low valuations and a strong rebound in small-cap stocks. Looking globally, ETFs tracking the stock markets of 51 countries (in USD) have an average return of as high as 33%, with a median of 30%. Among them, 48 countries recorded market increases, accounting for 95%. Even randomly selecting a market is likely to yield a 30% return, indicating that a 20% return is merely a very low threshold. The Federal Reserve has cumulatively cut interest rates 6 times, totaling 1.75 percentage points, including a significant cut of 0.5 basis points, directly stimulating the recent strength of the utility and real estate sectors in Hong Kong. Companies like CLP Holdings (002) and Cheung Kong Infrastructure (1038) have repeatedly reached new highs for the year. There is a clear differentiation among asset classes; investors who bought bonds in anticipation of rate cuts not only suffered losses but also significantly underperformed the stock market. Meanwhile, gold, as a safe-haven asset, has nearly doubled in price, while Bitcoin has lagged far behind. Tariff Reductions May Become a Major Variable Next Year Looking ahead to 2026, the economic outlook remains full of uncertainty. Federal Reserve Chairman Jerome Powell's term is coming to an end, and the new chairman may be influenced by political pressure, leaning towards more accommodative policies. Although the median forecast in the dot plot indicates only one rate cut, the market expects a significant chance of two or more cuts, especially as the unemployment rate rises to a four-year high and inflation data continues to fall below expectations. If economic growth further slows, restarting quantitative easing (QE) is not impossible, which would inject a large amount of liquidity into the market again, similar to measures taken after the pandemic. This is expected to benefit technology and growth stocks, but one must also be wary of potential inflation rebounds and asset bubble risks. Another significant variable is tariff reductions. If the U.S. and China or other major economies push for lower tariffs, it will significantly stimulate global trade and alleviate corporate cost pressures, particularly benefiting export-oriented China and emerging markets in Asia. As an important window into the Chinese economy, the Hong Kong stock market's manufacturing, consumption, and related sectors are likely to see rebound opportunities. Real estate and utility stocks can still be viewed positively, with Cheung Kong Infrastructure, Link REIT, Sun Hung Kai Properties (016), and CK Asset Holdings (1113) being worth continued attention In the U.S. stock market, tech giants like Meta are also attractive. In summary, the stock market may continue its upward trend in 2026, but volatility is expected to increase. Investors are advised to maintain a diversified allocation, focusing on utilities, real estate, and high-quality tech stocks, while keeping a small amount of gold and Bitcoin as a hedge. History tells us that the stock market always grows amid risks and uncertainties, with bearish voices every year, but long-term steady investments often prevail. Investors should maintain a humble mindset and flexibly adjust their strategies to embrace the opportunities and challenges of the new year. Li Shengyang Related articles: The Japanese yen still has room for interest rate hikes in 2026, focus on unwinding carry trades. Li Shengyang: It may be a good time for currency exchange