On December 16, BANK OF E ASIA (00023) released its 2026 economic and investment outlook. Chief Economist Zhuo Liang highlighted the broadening recovery of Hong Kong's economy, projecting GDP growth between 2.5% and 3% for 2026. Investment strategist Wu Yongqiang raised the Hang Seng Index target to 30,800 points, corresponding to an earnings per share target of HKD 2,400, implying a price-to-earnings ratio of 12.8x.
In the property market, Hong Kong private residential prices recorded low single-digit growth in 2025, with further high single-digit growth expected in 2026, signaling a clear stabilization trend. Wu Yongqiang expressed optimism for Hong Kong stocks, particularly in AI, emerging industries, and consumer services sectors. Addressing concerns about an AI bubble, he emphasized AI remains a core investment theme for 2026, though focus will shift from irrational hype to rational selection, given the sector's early-stage development and ample growth potential.
Supported by ongoing U.S. rate cuts, positive wealth effects, and the Hong Kong government's event-driven economy initiatives, the city's economic recovery is expected to continue. Wu also favors Hong Kong banking, property rental, and transportation sectors. However, he cautioned that mainland China may not release more intensive policy signals until late Q1 2026, with potential weak economic data posing risks—setting a provisional Hang Seng Index target of 27,000 for Q1.
Zhuo Liang noted Hong Kong's recovery spans multiple sectors, with international trade showing strong resilience. Exports to all major markets grew positively in the first 10 months of 2025, including a 0.8% uptick in U.S. exports, highlighting diversification benefits. Private consumption and retail sales improved significantly, with retail sales rebounding from May 2025 and private consumption expanding in Q2 after four quarters of contraction. Unemployment trends are expected to ease further.
Zhuo forecasts high single-digit retail sales growth in 2026, driven by tourist arrivals and RMB appreciation, though export growth may slow due to high base effects. For the property market, he identified interest rates as a key driver, with Fed rate cuts bolstering prices. The Hong Kong prime rate (P) is unlikely to follow U.S. cuts further, but 1-month HIBOR—linked to mortgages—could stay below 3% for most of 2026, potentially dropping to 2.3% by year-end, supporting a new growth cycle.
Regarding the U.S., Zhuo expects 3-4 Fed rate cuts totaling 75-100 bps in 2026 amid weaker labor markets and stabilizing inflation. Unemployment has risen to 4.4% from 3.4%, while core PCE remains steady below the 2% target. Wu Yongqiang set a 2026 S&P 500 target of 7,500 points (23.8x P/E), recommending focus on semiconductors, cloud platforms, and AI applications.