HSI surges 27% in 2025 as AI hardware pivot axes 4-year slump

IPO momentum, AI tech growth, and regulatory reforms boost the region’s equities.

Hong Kong’s financial markets showed resilience in 2025, with the Hang Seng Index (HSI) outperforming many regional peers and posting a 27% increase on year-to-date return, a CIMB report said. 

The index’s performance reflects its heavy sector weighting in Financials, Information Technology, and Consumer Discretionary.

The region is also identified as a key player in the global artificial intelligence (AI) hardware supply chain. The Hang Seng Tech Index (HSTECH) currently trades at a price-to-earnings ratio (PER) of 19.2x, below the NASDAQ’s 28.3x, suggesting potential upside as China progresses towards greater AI chip self-sufficiency.

The report also said Hong Kong’s IPO market has regained momentum, with over 300 applications currently in the pipeline.

Regulatory reforms have supported this revival, including increased equity allocation for state-owned insurance funds, encouragement for listed state-owned enterprises to raise dividends or undertake buybacks, and eased listing requirements for mainland A-shares and pre-revenue Specialist Technology Companies.

The HSI trades at 11.2x forward PER—about one standard deviation above its five-year average but below its prior peak of 14x. Projected earnings growth for 2026 stands at 11%.

Market liquidity is supported by Southbound flows, which accounted for 26.6% to 27% of total market turnover in late 2025, according to the report.

Hong Kong also continues to serve as a key destination for diverted Chinese exports amidst the ongoing US trade tensions.

Analysts maintain an overweight stance on Hong Kong/China equities, with H-shares forming the core of recommended holdings. The HSI target for 2026 is set at 30,100, based on a 13x PER.

A “barbell strategy” is advised, balancing quality growth exposure in AI, tech, and Southbound-flow beneficiaries with high-yield sectors such as Financials, Telecoms, and select Consumer names.

Equities within the region are positioned as overweight, with recommended products including China-focused equity funds and Asian equity income funds, offering both growth and yield opportunities.

Currency sentiment, as reflected by the offshore yuan (USD/CNH), is expected to move modestly from 7.08 in the first quarter of 2026 to 7.12 by the fourth quarter of 2026, indicating a relatively stable environment for investors.