(Bloomberg) -- HSBC Holdings Plc is turning bullish on Chinese stocks listed in Hong Kong, touting them as beneficiaries of more “favorable policy rhetoric” in mainland China and a better outlook for the domestic economy.
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The Hang Seng China Enterprises Index may rise 21% in calendar year 2025, HSBC strategists including Herald van der Linde and Prerna Garg wrote in a note. They raised their year-end estimate for the index to 8,800 from the previous forecast of 8,610.
The strategists also raised Hong Kong to overweight from neutral, while downgrading India to neutral. Korean stocks were raised to neutral from underweight.
Their rating changes come as Chinese stocks are off to a weak start this year amid concerns over rising geopolitical tensions stemming from Donald Trump’s return and his vows to raise tariffs. The broader MSCI China Index is down 19% from an October peak, approaching a bear market.
Still, lower interest rates, along with initiatives to boost tourism and revive the ailing local property sector, will support Hong Kong’s stock market, HSBC strategists said.
“The prospects for mainland China’s economy have improved and the recent shift in policy tone affirms the government’s determination to stabilize the economy,” they said. “This bodes well for the A-share market, and we think Hong Kong market will be an extended beneficiary.”
While there are expectations for further stimulus, concerns remain over the strength of the country’s economic recovery, with some market watchers sounding the alarm on a deflationary spiral similar to what Japan experienced in the 1990s.
Investors are now looking to the National People’s Congress meeting in March for Beijing’s 2025 growth target and detailed plans to boost consumption.
In January last year, HSBC forecast gains of about 24% for the HSCEI gauge in 2024. The index ended the year with a 26% advance.
READ: Chinese Markets Show Growing Alarm Over Deflationary Spiral
“Recent policy initiatives suggest that the risk of an immediate drop in earnings growth has been averted,” the strategists wrote in their current note. “This is critical for mitigating tail risks and restoring market confidence at a time when households are sitting on over $20 trillion of cash savings.”