Macroscope | Why investors should remain bullish on Hong Kong, mainland stocks in 2026

Judging by investor sentiment in the final quarter of last year, the spectacular rally in mainland Chinese and Hong Kong equities is over. The CSI 300 index of Shanghai- and Shenzhen-listed stocks declined 0.2 per cent while the MSCI China Index fell by over 7 per cent. The Hang Seng Index, meanwhile, lost 4.5 per cent.

While most Wall Street banks remain bullish on Chinese stocks, some have turned more cautious. Morgan Stanley believes 2026 will be “a year of stabilization after 2025’s high returns”, while Citigroup downgraded its recommendation for the MSCI China Index from overweight to neutral due to the weakness of China’s economy and concerns about the outlook for corporate earnings.

However, a cautious view on Chinese equities proved costly over the past two years. Last year, the MSCI China Index had its best year since 2017, outpacing the benchmark S&P 500 index by the widest margin in eight years. Despite the fierce rally, the MSCI China Index still stands around 30 per cent below its peak in February 2021, underscoring the potential for further gains.

Weak economic data and lacklustre earnings growth were big concerns at the beginning of last year, but that did not prevent China’s stock market rally from accelerating rapidly. In Hong Kong, the proceeds from listings, share placements and block trades quadrupled in 2025 to more than US$73 billion. The city became the top fundraising venue in Asia for the first time since 2013.

The dramatic recovery in Chinese equities has been supported by two global trends that are likely to persist. The first is the underperformance of US equities relative to the rest of the world. The MSCI All Country World ex-US Index rose 29 per cent last year compared with a 16.3 per cent gain for the S&P 500.

The damage wrought by US President Donald Trump’s assault on world trade – including the dollar index suffering its sharpest annual decline since 2017 due to doubts about the US dollar’s status as a safe haven – encouraged global investors to diversify away from the US.