According to KGI's latest market outlook for December, the revaluation of Chinese assets is expected to persist through 2026, with Hong Kong stocks continuing to benefit. KGI highlights that Hong Kong's economy is recovering, with the financial sector leading the rebound, resilient exports, a gradual recovery in the property market, and accelerating tourism revival. The Fed's ongoing rate-cut trend further supports Hong Kong equities.

Hong Kong stocks remain undervalued, with the Hang Seng Index currently trading at a dynamic P/E of just 11.5x—still far below historical peaks. The increasing presence of U.S.-listed Chinese firms returning and A-share tech companies accelerating secondary listings in Hong Kong is boosting the tech sector's weight, positioning the market as a mainstream hub for China's tech industry and attracting more global capital.

Medium to long-term, dual monetary easing by both China and the U.S. will drive sustained inflows into Hong Kong stocks, particularly via the Stock Connect program. Earnings upgrades and valuation re-rating are expected to sustain the market's upward trajectory.

For the U.S. market, KGI notes that AI-driven productivity gains, evident since late 2023, continue to strengthen, lowering unit labor costs (wages/labor productivity) and lifting corporate profits—Q3 2025 earnings exceeded expectations. Large-cap dominance in AI themes suggests stable future earnings, while elevated valuations are supported by fundamentals, easing bubble concerns. Key variables for 2026 include tariff policies, monetary shifts, labor market trends, and midterm elections.

In Asia, KGI is bullish on Japanese equities as Japan exits deflation, entering normalized inflation-driven growth. Companies are raising prices, households are spending more, and corporate reforms are boosting ROE, ROA, PBR, and dividends, alongside rising foreign investment and share buybacks.