Hong Kong's stock market rally is showing resilience, with JPMorgan Chase expecting the run to extend into 2026, yet its durability could be tested by rising interbank rates, commercial property risks and US-China tensions.
The MSCI Hong Kong Index (MXHK), a gauge tracking 27 large and mid-cap stocks in the city, has risen 26 per cent this year in US dollar terms, the best performance since 2017. And despite the stellar gains, the market remains attractively valued, according to the US investment bank.
The index was still trading below its 10-year average price-to-earnings multiple of 16 times, making it the cheapest in Asia-Pacific excluding Asean, according to JPMorgan's recent equity strategy report titled Hong Kong's comeback: early thoughts on 2026 and top picks.
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"There are certain headwinds, but Hong Kong's comeback since 2023 has become more apparent with a robust financial market and stabilising residential property market, while valuations are undemanding versus history and regional peers," said Wendy Liu, head of China and Hong Kong equity strategy research at JPMorgan, in the report. "We think this [combination] should attract inflows while the 'de-dollarisation narrative' stays."
Liu's team maintained its end-2025 base and bullish targets for the MXHK Index at 13,000 and 14,000 points, respectively, and projected further upside in 2026.
Assuming consensus earnings growth of 6 per cent in 2025 and 9 per cent in 2026, the bank estimates the index could reach between 14,366 and 16,679 points by the end of next year, representing potential gains of 8 to 25 per cent from current levels.
JPMorgan attributed the market's strength to several drivers: renewed fund inflows, a stabilising housing market, solid retail sales and a revival of initial public offering (IPO) activity in the city.
Hong Kong reclaimed the top spot in global IPO fundraising, having raised US$24 billion in the first nine months of the year, up 2.3 times from a year earlier, and a strong pipeline of more than 300 companies awaiting listing.
The market hosted two of the world's largest deals this year - Contemporary Amperex Technology's HK$41 billion (US$5.2 billion) offering and Zijin Gold International's HK$24.98 billion sale - underscoring returning investor confidence.
Residential property prices, which had fallen nearly 30 per cent from their 2021 peak, have found a floor since June, according to JPMorgan's property research team. Transaction volumes rose 12 per cent year on year in the first eight months of 2025, and prices are forecast to climb 3 to 5 per cent in 2026, supported by lower mortgage rates and stabilising household incomes.
The bank also sees the ongoing Federal Reserve easing cycle as more favourable for Hong Kong than previous rounds of rate cuts. Unlike the past three cycles, which were triggered by global crises and accompanied by sharp earnings downgrades, the current one has coincided with rising corporate profits and steady global growth.
"With further Fed rate cuts anticipated, JPMorgan believes a real positive carry could be achieved in 2026, lending additional support for housing prices," the report said.
Still, JPMorgan warned that short-term headwinds remained. The one-month Hibor has climbed back to 3.6 per cent - its highest since April - suggesting tighter liquidity conditions.
The expiry of IPO lock-ups and potential insider selling could add supply pressure after a surge in equity financing this year. Moreover, commercial real estate asset quality remained a concern, with developers' default risks likely to stay elevated throughout 2025, JPMorgan said.
Beyond domestic factors, recurring US-China tensions had added uncertainty to market sentiment, the bank said.
Investors are keenly awaiting the outcome of the meeting between US President Donald Trump and Chinese President Xi Jinping on Thursday - their first face-to-face meeting since Trump's return to the White House in January. The two leaders are expected to discuss a range of issues from tariffs to export controls and the Russia-Ukraine conflict.
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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