BANK OF E ASIA has released a research report outlining its revised forecasts for the Hong Kong stock market. Under its base case scenario, which assumes a de-escalation of Middle East conflicts within the next four to six weeks and a subsequent decline in Brent crude oil prices below $90 per barrel, the bank has adjusted its projections. It has lowered the 2026 Hang Seng Index earnings per share forecast from HKD 2,350 to HKD 2,300. The projected next-twelve-months (NTM) price-to-earnings (P/E) ratio has been reduced from 13.1 times to 12.6 times. Consequently, the target for the 2026 Hang Seng Index has been revised down from 30,800 points to 29,000 points. The bank views short-term market fluctuations as potential buying opportunities. Sectors and themes viewed favorably include AI cloud platforms, advanced semiconductors, humanoid robotics, copper and gold mining, photovoltaic and energy storage equipment, new consumer trends in mainland China, mainland Chinese insurance, Hong Kong real estate, and Hong Kong transportation and logistics.
The report also details a pessimistic scenario, which would materialize if Middle East conflicts intensify or persist into the third quarter, driving Brent crude oil prices to $120 per barrel and sustaining them at that level. In this adverse case, the bank's 2026 Hang Seng Index EPS forecast would be cut more significantly to HKD 2,200, and the NTM P/E ratio would be lowered to 11 times. This would result in a 2026 index target of 24,200 points, implying a potential correction of over 10% in the second quarter, potentially testing the 23,000-point level. Sectors considered defensive under such conditions include upstream energy and oilfield services, tanker shipping, coal, new energy power generation and storage, new energy vehicles, mainland Chinese banks, and local Hong Kong utilities.
The report noted that the MSCI Hong Kong Index has outperformed other major A-share and Hong Kong market indices year-to-date. This strength is attributed to sustained positive performance in Hong Kong's financial, consumer, and real estate sectors, coupled with better-than-expected 2025 earnings for many local companies. Under the base case scenario, the bank maintains a positive outlook on Hong Kong's local financial, property rental, transportation, and utility sectors. The rationale includes persistently low interest rates supporting a continued recovery in property sales; strong demand for wealth management, asset management, and IPO financing services from financial institutions; an increase in major events boosting tourist arrivals and local consumption; and the Hong Kong government's accelerated integration with mainland China's "15th Five-Year Plan," with a focus on innovation and technology, Northern Metropolis development, and cross-border finance.
Supported by these diverse growth drivers, the Hong Kong economy is expected to show robust performance in 2025. Looking ahead to 2026, the momentum of economic recovery is forecast to continue, fueled by factors such as reduced global trade policy uncertainty, ample market liquidity, and sustained high levels of public investment. Full-year growth for 2026 is projected to reach 2.8%. Benefiting from lower interest rates, ongoing economic recovery, and increased housing demand driven by incoming talent, residential property prices in Hong Kong are anticipated to achieve high single-digit percentage growth in 2026.
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