The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that the main reason for the “value clearly outperforming growth” of Hong Kong stocks in 2026 was the double loss of profit and valuation in the technology sector. Looking ahead to 2027, the main trend of global trading may change, and Hong Kong stocks have room to return to the average: the pressure on the “pump end” (refinancing, reduction of holdings) on liquidity is expected to ease, the low base effect caused by the decline in profits of technology growth stocks will be concentrated in the first half of 2027, and Hong Kong stocks have not experienced a two-year decline in valuation in a row in the past ten years. Structurally, the upward direction of profit expectations is concentrated in the financial, resource products and hardware industries. Among them, stock prices in the raw materials, non-bank, and semiconductor sectors have not kept up with the pace of profit improvement; currently Hang Seng Technology ERP once reached close to the level of April 2025, and market sentiment is already quite pessimistic. If stocks are shorted and loosened, it is expected to become the first source of funding for the market reversal. Based on ERP model calculations, the potential yield of the Hang Seng Index in 2027 is about 14.62% under the neutral scenario; the yield can reach 33.24% in the optimistic scenario; and -7.28% in the pessimistic scenario.
Shen Wan Hongyuan's main views are as follows:
Against the backdrop of the declining dollar, the positioning of the Hong Kong financial market in China is expected to usher in a systemic restructuring. Under the “three gates” of medium- to long-term credit damage to the US dollar, tariffs “wedge” the global dollar cycle, and the systematic contraction of PE money in the Asia-Pacific region, the trend in dollar liquidity, which the Hong Kong financial market has relied on for a long time, is declining, and the participation in the monetary structure of the Hong Kong, China financial market is bound to usher in major changes. The hedging power lies in RMB's deep participation: currently the share of RMB international payments has reached 6-7%, but reserves and bonds account for only 1-2%. The bottleneck of “being able to spend and cannot be invested” is being solved through multiple channels of dim sum bonds, RMB trading counters, treasury bond futures derivatives, and connectivity. Offshore and onshore RMB are jointly reshaping the Hong Kong market.
In addition, the Hong Kong stock market can also play an important role in mainland China's long-term pursuit of high-yield assets: on the one hand, the cost performance ratio of Hong Kong stock dividend assets is still outstanding, and the long-term allocation of onshore RMB has not ended, and there is room for convergence in current small-cap dividend prices; on the other hand, the asset pool of the Hong Kong stock market is becoming richer in the context of various listing system reforms, attracting foreign companies to go public and being incorporated into the Hong Kong Stock Connect. Hong Kong stocks are expected to continue to strengthen as a market that can simultaneously reach international and mainland capital. ETF issuance and entry General rules are the latest expression of this value.
The overall liquidity environment of the Hong Kong stock market in 2027 is expected to be better than this year. On the “pump side” of capital requirements, the “pumping effect” of IPOs is more about short-term subscription capital disturbances. An important driver for 2025-2026 turnover to nearly double compared to 2021 is the transaction contribution of newly listed companies. It is not a zero-sum game between new and old stocks. Historically, the rise in the scale of unbanning has had almost no systemic impact on broad-based indices. The pressure is mainly reflected at the level of individual stocks. The real suppression is refinancing and holdings reduction — this year's refinancing was once close to historic highs. The “large refinancing+small share dilution” combination put the greatest pressure on the market. The increase in actual holdings reduction by major shareholders is an important factor in the tightening of the Hong Kong stock liquidity environment this year. On the “water supply side” side of capital supply, although the overall repurchase scale of the market did not return to an all-time high this year, the number of repurchase companies this year has reached a record high. The breadth is wider than in 2024, and historically, the timing of the number of repurchase companies is significantly superior to the repurchase amount.
Taken together, the “repurchase-financing-holding-reduction” margin has clearly subsided since July 2026. The scale of shareholder returns during the year is still slightly ahead of market financing, and the overall capital supply and demand structure is still superior to the 2017-2018 and 2020-2021 cycles. With the recent rise in the IPO breakout rate, it is expected that the overall financing scale of Hong Kong stocks may decline in 2027. The combined lifting of the ban will decline after peaking in January 2027, and the pressure on the pumping side is expected to ease. In terms of incremental capital: The net inflow of southbound capital during the year was around HK$400 billion, and the share of annual transactions declined for the first time since opening. Although the Hong Kong stock allocation ratio of public funds passively rebounded to 10.8% in the third quarter, it was still low. Institutional investors participating in the Hong Kong stock technology growth sector through ETFs also showed a clear reduction in their positions in 2026. The recent return of overseas capital has mainly been short-term tactical funds such as ETFs, and medium- to long-term capital has not yet turned long. It is worth noting that the current share of short trades in the market and the amount of unclosed short positions are at historically high levels. If there is a reversal in the future, shorting is expected to become an important source of capital to boost the market.
Fundamentals and valuations are expected to reverberate. On the profit side, the Hang Seng Index EPS was relatively stable this year, while Hang Seng Technology's EPS continued to be drastically revised. In the early stages, it was mainly due to internal competition that encroached on profits, but now it has turned into an erosion of net profit due to rising CapEx under the wave of AI hardware investment. The resulting low base effect will significantly boost the year-on-year profit growth rate of Hong Kong stocks in 2027 (especially in the first half of the year), and Hang Seng Technology's profit elasticity is expected to be much higher than that of the Hang Seng Index. In the future, we will focus on observing improvements in capital expenditure and domestic demand on internet platforms. On the valuation side, the valuation index of the Hang Seng Index, which apparently has a high historical percentile of the Hong Kong stock market as a whole, does not represent the actual historical valuation percentile of the current Hong Kong stock market. Systematic repricing has actually lowered the index ERP fluctuation center since 2023 — if this repricing is restored, the current theoretical value of the Hang Seng Index ERP is about 7.4%, so based on broad-based valuation alone, it is relatively one-sided to assert that Hong Kong stocks as a whole are “not undervalued”.
Looking at the Hang Seng Technology Index alone, its valuation and profit have been drastically revised at the same time. Recently, ERP was even close to the high level in April 2025, and the valuation cost ratio is outstanding. This year's valuation downgrades are a common phenomenon in large, medium, and small markets, showing that more risk appetite and liquidity are being suppressed at the beta level. Furthermore, in the past ten years, Hong Kong stocks have not experienced two consecutive year of valuation decline. The following year (2019, 2022, 2024) of 2018, 2021, and 2023, all experienced valuation revisions. Based on ERP model calculations, the potential yield of the Hang Seng Index in 2027 is about 14.62% under the neutral scenario; the yield can reach 33.24% in the optimistic scenario; and -7.28% in the pessimistic scenario.
Risk warning: The domestic macroeconomy is weaker than expected, and the real estate and consumer markets continue to be weak; the trend within the industry continues, affecting the operation and profit situation of relevant major companies, thereby slowing down the overall performance of the market; risks in overseas financial markets such as AI investment spread to Hong Kong stocks; geographical risk caused a rapid rise in global risk aversion, and large fluctuations in the prices of some financial assets were transmitted to other financial markets, causing a liquidity crisis; fluctuations in the RMB exchange rate intensified, and foreign investors introduced new restrictive policies to reduce the willingness of overseas investors to allocate funds.