China Galaxy Securities: The pace of Hong Kong stocks this year depends on capital flows, the price-earnings ratio indicates that there is a lot of room for repair

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that in the context of domestic and foreign monetary policy easing, both foreign capital and southbound capital are expected to continue to maintain a net inflow trend. Driven by favorable policies such as speeding up technological innovation, a new round of supply-side reforms, and expanding domestic demand, the profit level of Hong Kong stock listed companies is expected to substantially increase, and the market will usher in a pattern of rising profits and valuations. Overall, Hong Kong stocks are expected to fluctuate upward.

China Galaxy Securities's main views are as follows:

The bank released the 2026 Hong Kong Stock Outlook Report for Hong Kong Stocks earlier

(1) The fundamentals of the Hong Kong stock market are largely dependent on the domestic macroeconomy. Looking ahead to 2026, China's macroeconomic policies will maintain continuity and stability, economic growth will remain resilient, and inflation is expected to rise from a low level. (2) In terms of major broad-based indices, according to market expectations, the profit growth rate of the three major indices is expected to decline somewhat. In 2026, the Hang Seng Index's earnings per share will increase 9.64% year on year, the Hang Seng Technology Index will increase 34.63%, and the Hang Seng China Enterprise Index will increase 9.9%. At the industry level, the earnings per share growth rate for non-essential consumption, raw materials, and information technology industries are expected to be the highest in 2026.

Financial aspects of the Hong Kong stock market

(1) As of December 19, 2025, Hong Kong Stock Connect held about 13.1% of the market value of shares, and international intermediaries held about 40.1% of the market value of shares, up 2.7 percentage points and decreased 2.4 percentage points respectively from the end of 2024, indicating that domestic investors increased their net holdings of Hong Kong stocks compared to foreign investors, and the voice and influence of Southbound capital in Hong Kong stocks has further increased. (2) From the beginning of the year to December 19, the Hong Kong Stock Connect accumulated net inflows into the Hong Kong stock market of HK$1.4 trillion, an increase of 74% year-on-year over the 2024 net inflow. Looking ahead to 2026, China will continue to implement a moderately loose monetary policy. Under a low interest rate environment, southbound capital is motivated to flow into Hong Kong stocks to reap profits. (3) From the beginning of 2025 to December 17, the cumulative net inflow of foreign capital into the Hong Kong stock market (statistical scope: H share+P share+red chip shares) was US$17.689 billion. The Federal Reserve's December bitmap shows that by the end of 2026, the Federal Reserve's median estimate of the federal funds rate is 3.4%, 0.25 percentage points lower than the current 3.5% to 3.75% range. Affected by multiple key factors such as the election of the Federal Reserve chairman, US economic data for the first quarter, and inflation data, the specific pace of the Fed's interest rate cuts may become more clear after April 2026. Overall, the US dollar index and US bond interest rates are expected to continue to decline from current levels in 2026, which is conducive to increasing the valuation of Hong Kong stocks and attracting foreign investment into the Hong Kong stock market.

Overall, Hong Kong stock investment in 2026: the pace depends on “water” (capital flow), focusing on “quality” (performance performance)

As an offshore market, Hong Kong stocks are highly sensitive to global liquidity, implementation of domestic policies, and recovery of corporate profits. It is necessary to emphasize the importance of phased timing, policy and capital resonance points. At the same time, the structural differentiation of Hong Kong stocks is highly deterministic. The concentration of the two main lines of growth elasticity and high dividend defense attributes of the new economy has not changed, and it may further solidify in 2026 with the economic recovery slope and industrial policy.

Judging from market performance, as of December 19, 2025, the price-earnings ratio of the Hang Seng Technology Index (past 12 months) was 23.1 times, up 11.91% from the end of 2024, and is at the 31.43% quantile level since statistics were available; the profit per share (past 12 months) level rose 9.58% from the end of the previous year. From a vertical perspective, the current price-earnings ratio of the Hang Seng Technology Index (past 12 months) is 70.73 times higher than the historical high in 2021, and there is a lot of room for repair. The horizontal comparison is also significantly lower than other technology indices in major global equity markets — as of December 19, 2025, the price-earnings ratio of the NASDAQ 100 index (past 12 months) was 36 times, and the price-earnings ratio of the S&P 500 IT and GEM indices (past 12 months) was about 40 times. Investing in core technology assets in Hong Kong stocks is highly cost-effective on a global scale. Meanwhile, the Federal Reserve is in a cycle of cutting interest rates. In 2025, the Federal Reserve cut interest rates three times, cutting interest rates by a total of 75 basis points throughout the year. The Federal Reserve's monetary policy is expected to remain in an easy range in 2026, and technology stocks with strong flexibility may be favored by capital.

In terms of configuration, it is recommended to pay attention

(1) Science and technology innovation theme: Under the goal of a significant increase in the level of self-reliance and self-improvement in science and technology during the “15th Five-Year Plan” period, technological innovation will be one of the main lines of investment in Hong Kong stocks. There is still plenty of room for valuation repair in the Hang Seng Technology Index. The leading performance is expected to be characterized by high prosperity. Combined with the continuing boom in mainland companies' listing in Hong Kong, the vitality of the Hong Kong stock science and technology innovation ecosystem will be further unleashed. (2) Cyclical industry: Under the guidance of supply-side reforms and deepening policies, the supply and demand pattern of related sectors such as steel, building materials, electrical equipment, and papermaking is expected to be optimized, and capacity utilization and gross margin may increase steadily. (3) Consumer theme: Under the leadership of the strategy of expanding domestic demand, the growth rate of performance is expected to rise and the valuation is at a historically low level, especially in service consumption, “trade-in”, and new types of consumption.