This week's Hong Kong stock market performance: (1) For the week (December 29, 2025, to January 2, 2026), most major global stock indices rose. Among them, the Hang Seng Index gained 2.01%, the Hang Seng Tech Index surged 4.31%, and the Hang Seng China Enterprises Index increased by 2.85%. (2) At the sector level in Hong Kong: Among primary industries, 7 sectors advanced this week while 4 declined. Specifically, the Information Technology, Energy, and Materials sector indices rose by 4.54%, 3.97%, and 2.98% respectively; the Consumer Staples, Utilities, and Health Care sector indices led the declines, falling by 2.25%, 1.60%, and 0.59% respectively. Looking at secondary industries, the Semiconductor, Defense & Aerospace, Oil & Petrochemicals, Software Services, and Paper & Packaging sector indices posted the strongest gains this week, while the Household Products, Consumer Durables, Consumer Services, Consumer Staples Retail, and Textiles & Apparel sector indices saw the largest drops.
This week's Hong Kong market liquidity: (1) The average daily turnover on the Hong Kong Exchange this week was HKD 171.19 billion, an increase of HKD 31.264 billion from the previous week. The average daily short-selling amount was HKD 19.927 billion, up HKD 2.961 billion from last week; the average daily ratio of short-selling amount to turnover was 11.78%, down 0.22 percentage points from the previous week. (2) Southbound capital recorded a cumulative net outflow of HKD 3.81 billion this week, a decrease of HKD 6.371 billion compared to the net inflow recorded last week.
Hong Kong market valuation and risk appetite: (1) As of January 2, 2026, the PE and PB ratios of the Hang Seng Index were 12.09x and 1.23x respectively, both up 2.36% from the previous Friday, placing them at the 79th and 56th percentile levels since 2010. The PE and PB ratios of the Hang Seng Tech Index were 23.8x and 3.15x respectively, situated at the 36th and 66th percentile levels since 2010. (2) The yield on the 10-year US Treasury note rose 5 basis points from last Friday to 4.19%. The risk premium rate for the Hang Seng Index was 4.08%, which is -1.82 standard deviations from its 3-year rolling average, at the 4th percentile since 2010. The yield on the 10-year Chinese government bond increased 0.97 basis points from last Friday to 1.8473%, resulting in a risk premium rate for the Hang Seng Index of 6.42%, which is -1.71 standard deviations from its (3-year rolling) average, at the 40th percentile since 2010. (3) The Hang Seng Stock Connect AH Premium Index decreased by 2.26 points from last Friday to 120.89, at the 19th percentile level since 2014.
Investment outlook for the Hong Kong stock market: Overseas, the minutes from the Fed's December 2025 meeting revealed that while the FOMC agreed to cut rates at the December meeting, officials were deeply divided. Some participants indicated that, based on their economic outlook, it might be necessary to maintain the target rate range unchanged for a period after the rate cut at this meeting. US President Trump is expected to announce his nominee for the next Fed Chair in January. Domestically, in December, the Manufacturing Purchasing Managers' Index (PMI) was 50.1%, up 0.9 percentage points from the previous month, moving into expansion territory. The Non-Manufacturing Business Activity Index for December was 50.2%, rising 0.7 percentage points from the previous month, returning to expansion territory. The Composite PMI Output Index for December was 50.7%, increasing 1.0 percentage points from the previous month, indicating an overall expansion in production and business activities of Chinese enterprises compared to the previous month. Looking ahead, with the resonance of multiple positive factors, trading activity in the Hong Kong stock market is expected to continue rising, and the overall market is projected to trend upwards with volatility. In terms of allocation, it is recommended to focus on the following sectors: (1) The technology sector remains a medium-to-long-term investment theme and is expected to rise with volatility, supported by the combined tailwinds of industry-wide price increases, mergers and acquisitions, and import substitution. (2) The consumption sector is poised to continue benefiting from policy support, and with current valuations at relatively low levels, it possesses significant medium-to-long-term upside potential. Subsequent attention should be paid to the implementation strength of policies and improvements in consumption data.
Risk warnings: Risks associated with domestic policy strength and effectiveness falling short of expectations; risks of overseas interest rate cuts falling short of expectations; risks of unstable market sentiment.
Main Text I. Review of the Hong Kong Stock Market This Week (I) Index Performance For the week (December 29, 2025, to January 2, 2026), most major global stock indices rose. Due to the New Year holiday, the Hong Kong market was closed on the afternoon of Wednesday, December 31, 2025, and all day on Thursday, January 1, 2026, resuming normal trading from Friday, January 2. This week, the Hang Seng Index rose 2.01% to close at 26,338.47 points; the Hang Seng Tech Index surged 4.31% to 5,736.44 points; and the Hang Seng China Enterprises Index gained 2.85% to 9,168.99 points.
Among Hong Kong's primary industries, 7 sectors advanced this week while 4 declined. The Information Technology, Energy, and Materials sector indices rose by 4.54%, 3.97%, and 2.98% respectively; the Consumer Staples, Utilities, and Health Care sector indices led the declines, falling by 2.25%, 1.60%, and 0.59% respectively. Looking at secondary industries, the Semiconductor, Defense & Aerospace, Oil & Petrochemicals, Software Services, and Paper & Packaging sector indices posted the strongest gains this week, while the Household Products, Consumer Durables, Consumer Services, Consumer Staples Retail, and Textiles & Apparel sector indices saw the largest drops.
On the news front, in technology: (1) On the evening of December 31, 2025, Hua Hong Semiconductor released a major asset restructuring announcement, proposing to acquire a combined 97.4988% equity stake in Huali Microelectronics from four counterparties, including the Hua Hong Group, via a share issuance, with a transaction value reaching RMB 8.268 billion. Concurrently, the company plans a private placement to raise matching funds of up to RMB 7.556 billion from no more than 35 specific investors, primarily for Huali Microelectronics' technology upgrades and specialized process industrialization projects. (2) Biren Technology (06082.HK) successfully listed on the Hong Kong Stock Exchange on January 2, 2026, becoming the first "domestic GPU stock" on the HKEX and the first new listing of 2026. With the first gavel of the new year at the HKEX, Biren Technology opened strongly at HKD 35.70, a significant 82% premium to its issue price, reaching an intraday high of HKD 42.88 and briefly achieving a market capitalization exceeding HKD 100 billion. By the close on January 2, the stock settled at HKD 34.46, up 75.82%, corresponding to a market cap of HKD 82.6 billion. (3) Baidu announced on January 2 that its AI chip subsidiary, Kunlun Xin, had confidentially submitted a main board listing application to the HKEX on January 1. If successfully listed, Kunlun Xin will remain a subsidiary of Baidu, but specific offering size, ownership structure, and other details are pending finalization. The spin-off is subject to approval by the HKEX Listing Committee and filing with the China Securities Regulatory Commission.
In consumption, the "Notice on Implementing Large-Scale Equipment Renewal and Consumer Goods Trade-in Policies in 2026," jointly issued by the National Development and Reform Commission and the Ministry of Finance, was released on December 30, 2025, clarifying the scope and subsidy amounts for the "Two New" policies. For 2026, national subsidy targets newly include smart products like smart glasses and smart home devices, while excluding home decoration and electric bicycles. Subsidies for new car purchases are set at 12% or 10% of the vehicle price, with the upper limits maintained at the 2025 standards (i.e., RMB 20,000 or RMB 15,000). The scope of national subsidies for home appliances has been narrowed to six categories: refrigerators, washing machines, televisions, air conditioners, computers, and water heaters. The subsidy rate for Grade 1 energy-efficient appliances has been reduced from the previous 20% to 15%, and the maximum subsidy per appliance has been lowered from RMB 2,000 to RMB 1,500. Recently, the NDRC, in conjunction with the Ministry of Finance, has pre-allocated the first batch of 2026 funds totaling RMB 62.5 billion from ultra-long-term special treasury bonds to support the consumer goods trade-in program.
Regarding digital currency, the People's Bank of China recently released the "Action Plan on Further Strengthening the Digital Yuan Management Service System and Related Financial Infrastructure," specifying that the measurement framework, management system, operational mechanisms, and ecosystem for the new generation digital yuan will be officially implemented on January 1, 2026. Wallet balances will accrue interest based on the demand deposit interest rate. This move signifies the upgrade of the digital yuan from "digital cash" to "digital deposits," further stimulating market expectations for a compliant crypto ecosystem.
(II) Fund Flows From a sentiment indicator perspective, the average daily turnover on the Hong Kong Exchange this week was HKD 171.19 billion, an increase of HKD 31.264 billion from the previous week. The average daily short-selling amount this week was HKD 19.927 billion, up HKD 2.961 billion from last week; the average daily ratio of short-selling amount to turnover was 11.78%, down 0.22 percentage points from the previous week.
In terms of liquidity indicators, Southbound capital recorded a cumulative net outflow of HKD 3.81 billion this week, a decrease of HKD 6.371 billion compared to the net inflow recorded last week.
(III) Valuation and Risk Premium As of January 2, 2026, the PE and PB ratios of the Hang Seng Index were 12.09x and 1.23x respectively, both up 2.36% from the previous Friday, placing them at the 79th and 56th percentile levels since 2010. The PE and PB ratios of the Hang Seng Tech Index were 23.8x and 3.15x respectively, situated at the 36th and 66th percentile levels since 2010.
As of January 2, 2026, the yield on the 10-year US Treasury note rose 5 basis points from last Friday to 4.19%. The risk premium rate for the Hang Seng Index (1/Hang Seng Index PE - 10-year US Treasury yield) was 4.08%, which is -1.82 standard deviations from its 3-year rolling average, at the 4th percentile since 2010.
As of January 2, 2026, the yield on the 10-year Chinese government bond increased 0.97 basis points from last Friday to 1.8473%, resulting in a risk premium rate for the Hang Seng Index (1/Hang Seng Index PE - 10-year China government bond yield) of 6.42%, which is -1.71 standard deviations from its (3-year rolling) average, at the 40th percentile since 2010.
Regarding sector valuations, as of January 2, 2026, valuations among Hong Kong's primary industries showed significant divergence. The PE valuations for Utilities, Consumer Staples, Information Technology, and Energy were all below the 50th percentile since 2010, indicating historically low-to-mid levels; with the exception of Real Estate, the PE valuations of all other sectors were above the 50th percentile level since 2019.
As of January 2, 2026, the dividend yield for the Energy sector exceeded 6%, while the dividend yields for Communication Services, Utilities, Financials, and Real Estate all surpassed 4%. Among these, the dividend yields for Energy, Financials, and Utilities were all above the 70th percentile level since 2010. Investing in these sectors is beneficial for investors seeking stable income.
As of January 2, 2026, the Hang Seng Stock Connect AH Premium Index decreased by 2.26 points from last Friday to 120.89, at the 19th percentile level since 2014.
II. Investment Outlook for the Hong Kong Stock Market Overseas, the minutes from the Fed's December 2025 meeting revealed that while the FOMC agreed to cut rates at the December meeting, officials were deeply divided. Some participants indicated that, based on their economic outlook, it might be necessary to maintain the target rate range unchanged for a period after the rate cut at this meeting. The minutes also showed that most officials believed further rate cuts would be appropriate if inflation declined gradually as expected. US President Trump is expected to announce his nominee for the next Fed Chair in January.
Domestically, according to data from the National Bureau of Statistics, in December, the Manufacturing Purchasing Managers' Index (PMI) was 50.1%, up 0.9 percentage points from the previous month, moving into expansion territory. The Non-Manufacturing Business Activity Index for December was 50.2%, rising 0.7 percentage points from the previous month, returning to expansion territory. The Composite PMI Output Index for December was 50.7%, increasing 1.0 percentage points from the previous month, indicating an overall expansion in production and business activities of Chinese enterprises compared to the previous month.
Looking ahead, with the resonance of multiple positive factors, trading activity in the Hong Kong stock market is expected to continue rising, and the overall market is projected to trend upwards with volatility. In terms of allocation, it is recommended to focus on the following sectors: (1) The technology sector remains a medium-to-long-term investment theme and is expected to rise with volatility, supported by the combined tailwinds of industry-wide price increases, mergers and acquisitions, and import substitution. (2) The consumption sector is poised to continue benefiting from policy support, and with current valuations at relatively low levels, it possesses significant medium-to-long-term upside potential. Subsequent attention should be paid to the implementation strength of policies and improvements in consumption data.
III. Risk Warnings Risks associated with domestic policy strength and effectiveness falling short of expectations; risks of overseas interest rate cuts falling short of expectations; risks of unstable market sentiment.
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