Broker Name: OCBC Investment Research
Date of Report: 6 June 2025
Hong Kong and China Equities: Silver Linings Amid Market Volatility in 2025
Overview: Navigating a Bumpy Yet Optimistic Market
The Hong Kong and China equity markets in 2025 are riding a wave of cautious optimism, buoyed by a temporary US-China trade truce, robust first-quarter results, undemanding valuations, and low institutional investor positioning. While ongoing trade negotiations and geopolitical tensions remain key swing factors, recent developments—including a 90-day tariff pause and resumed rare earth trades—have provided short-term relief and improved market sentiment.
OCBC Investment Research maintains a constructive outlook, favoring offshore Chinese equities in the near term and emphasizing three core investment themes: quality yield stocks, leading internet and platform companies, and policy beneficiaries focused on domestic consumption and technological innovation.
Market Strategy: Outlook and Index Targets
- Hang Seng Index targets:
- Base case: 25,400
- Bull case: 26,900
- Bear case: 20,100
- Shift in preference to offshore Chinese equities due to trade de-escalation and slower anticipated stimulus rollout.
- Three preferred investment themes:
- Quality yield stocks
- Internet and platform companies
- Policy beneficiaries in consumption and tech innovation
Key Market Developments: US-China Trade Truce and Risks
On 12 May 2025, the US and China agreed to a 90-day pause in their trade war, resulting in significant tariff reductions: US Trump 2.0 tariffs on China dropped from 145% to 30%, while China lowered its retaliatory tariffs from 125% to 10%. However, several issues remain unresolved, including fentanyl tariffs, export controls, purchase agreements, and the TikTok deal. The market should closely monitor these areas as they could influence future talks and market direction.
Despite the truce, tensions have resurfaced with US accusations that China delayed export licenses for rare earth materials and China’s counterclaims regarding new US tech restrictions. The risk of a breakdown as the 90-day pause nears expiry in mid-August remains, making ongoing negotiations a persistent source of market volatility.
Investment Themes: Where to Focus in 2025
1. Quality Yield Stocks: Stability Amid Volatility
With interest rates in both Hong Kong and Mainland China at multi-year lows (1-month HIBOR at 0.6-0.7%; 10Y China government bonds at 1.6-1.7%), the search for yield is intensifying. Quality yield stocks are expected to see continued demand, especially from Southbound insurance funds, as a defensive strategy against market swings and trade uncertainty.
Top Picks for Yield:
| Company |
Ticker |
Sector |
Current Price (HKD) |
Target Price (HKD) |
Potential Upside |
Dividend Yield |
ESG Rating |
| China Telecom |
728 HK |
Communication Services |
5.7 |
7.2 |
26.9% |
5.4% |
N/A |
| China Mobile |
941 HK |
Communication Services |
89.2 |
100.0 |
12.1% |
6.2% |
N/A |
| Tingyi |
322 HK |
Consumer Staples |
12.9 |
17.7 |
37.9% |
6.2% |
BB |
| Uni-President China |
220 HK |
Consumer Staples |
10.4 |
12.1 |
16.3% |
5.2% |
N/A |
| PetroChina |
857 HK |
Energy |
6.8 |
7.7 |
12.9% |
7.0% |
B |
| China Construction Bank |
939 HK |
Financials |
7.3 |
8.0 |
9.6% |
5.9% |
AAA |
| ICBC |
1398 HK |
Financials |
5.9 |
6.8 |
15.3% |
5.7% |
AA |
| HSBC Holdings |
5 HK |
Financials |
93.1 |
102.0 |
9.6% |
5.7% |
AA |
| Ping An |
2318 HK |
Financials |
46.0 |
62.7 |
36.3% |
6.3% |
AA |
| China Resources Gas |
1193 HK |
Utilities |
21.5 |
37.9 |
76.9% |
4.9% |
A |
2. Internet and Platform Leaders: Resilient Growth with AI Upside
China’s internet and platform giants, making up nearly a third of the major indices, are trading at substantial discounts to global peers, providing an attractive entry point. The latest earnings underscore the resilience of gaming and the growing benefits of AI application integration.
- Tencent Holdings (700 HK): With a forward P/E of 17.3x (2025E), Tencent’s gaming division has proven defensive across cycles, while its AI strategy is delivering early benefits. The company is well-positioned for further AI-driven upside.
- Alibaba Group (9988 HK): The leading cloud hyperscaler in China, Alibaba is capitalizing on AI infrastructure and external cloud growth. It reported strong momentum in both revenue and net profit, with a forward P/E of 12.2x (2025E).
- Trip.com Group (9961 HK): As domestic consumption pivots to services and experiences, Trip.com reported resilient leisure travel demand and robust outbound/inbound activity. It continues to invest in its international platform, with short-term margin headwinds expected to yield long-term benefits. Domestic tourist growth during the Dragon Boat and Labour Day holidays reached 5.7% and 5.9% YoY, respectively.
3. Policy Beneficiaries: Consumption and Technology Innovation
Companies benefiting from domestic policy support, especially in consumption and technological advancement, are expected to outperform.
- Xiaomi Corp (1810 HK): At its recent investor day, Xiaomi projected 30% YoY revenue growth and 40% YoY adjusted net profit growth for FY2025. Key drivers include:
- Smartphone shipments forecasted at 175-180 million, with a 3-5% ASP increase and gross margins of 12.0-12.5%.
- The EV business, targeting 350,000 units in 2025, is expected to turn profitable from 2H25, with overseas expansion by 2027.
- A “Human x Car x Home” ecosystem, premiumization efforts, international business growth, and increased R&D in AI, chips, and smart manufacturing, as well as aggressive “new retail” initiatives in China.
ADR Delisting Risk: A Persistent Wildcard
Despite the trade truce, the threat of Chinese ADR delistings remains. Policy uncertainty and the possibility of further US restrictions on Chinese investments could continue to cast a shadow on sentiment and capital flows.
Hong Kong Capital Markets: IPO Revival and Liquidity Surge
Hong Kong’s equity market is experiencing a meaningful revival in both the primary and secondary markets. As of May 2025, about 30 IPOs raised HKD 77 billion, with over 150 active listing applications in the pipeline. A-share blue-chip listings are accelerating, supported by successful fundraises from companies like Midea and CATL. Specialist technology firms in e-commerce, automation, NEVs, and AI are also seeking listings under Chapter 18C.
Among the 25 major China ADRs with dual HK listings, Pinduoduo leads by market cap and turnover. Southbound net inflows surged 79% YoY to USD 85 billion YTD, representing over 80% of 2024’s total.
Hong Kong Exchanges & Clearing (HKEX, 388 HK): The exchange stands to benefit from the surge in IPOs and trading activity, with a forward P/E of 33.9x (2025E).
Impact of Declining HIBOR: Opportunities and Risks
The sharp decline in Hong Kong Interbank Offered Rate (HIBOR), now at 0.6-0.7%, is attributed to aggressive HKMA interventions to defend the currency peg as the HKD reached the strong end of its band against the USD. The resulting record divergence between HIBOR and US SOFR (over 300bps) has enabled much lower HK interest rates, supporting equities, bonds, and property markets.
For banks, lower HIBOR may pressure Net Interest Margins (NIM), but could support loan growth and alleviate asset quality concerns. International banks are preferred over domestic banks due to their smaller sensitivity to HIBOR. For property, with average residential yields at 3.5%-3.7%, sustained low HIBOR could boost buying sentiment.
Valuation Table: Key Metrics for Top Picks
| Company |
Ticker |
P/E 2025E |
P/E 2026E |
P/B 2025E |
P/B 2026E |
Dividend Yield 2025E |
Dividend Yield 2026E |
ROE 2025E |
ROE 2026E |
| China Telecom |
728 HK |
13.6 |
12.6 |
1.0 |
1.0 |
5.4% |
6.1% |
7.6% |
8.0% |
| China Mobile |
941 HK |
12.0 |
11.4 |
1.2 |
1.2 |
6.2% |
6.6% |
10.3% |
10.5% |
| Tencent |
700 HK |
17.3 |
15.4 |
3.7 |
3.2 |
1.0% |
1.2% |
20.3% |
19.7% |
| Alibaba |
9988 HK |
12.2 |
10.6 |
1.9 |
1.7 |
0.8% |
0.8% |
13.4% |
13.7% |
| Trip.com |
9961 HK |
16.8 |
14.8 |
1.8 |
1.7 |
0.2% |
0.2% |
10.8% |
11.1% |
| Tingyi |
322 HK |
16.2 |
14.9 |
4.5 |
4.4 |
6.2% |
6.8% |
28.3% |
30.2% |
| Uni-President China |
220 HK |
19.4 |
17.7 |
3.0 |
3.0 |
5.2% |
5.7% |
16.0% |
17.2% |
| PetroChina |
857 HK |
7.1 |
7.1 |
0.7 |
0.7 |
7.0% |
6.8% |
10.4% |
10.0% |
| China Construction Bank |
939 HK |
5.1 |
5.0 |
0.5 |
0.5 |
5.9% |
6.0% |
9.9% |
9.5% |
| HKEX |
388 HK |
33.9 |
33.0 |
9.2 |
8.9 |
2.6% |
2.6% |
27.1% |
26.8% |
| HSBC Holdings |
5 HK |
8.9 |
8.5 |
1.2 |
1.1 |
5.7% |
5.9% |
13.1% |
13.4% |
| ICBC |
1398 HK |
5.5 |
5.4 |
0.5 |
0.5 |
5.7% |
5.8% |
9.5% |
9.1% |
| Ping An |
2318 HK |
5.9 |
5.4 |
0.7 |
0.7 |
6.3% |
6.6% |
12.9% |
12.9% |
| China Resources Gas |
1193 HK |
10.9 |
10.0 |
1.1 |
1.1 |
4.9% |
5.4% |
10.3% |
10.6% |
| Xiaomi Corp-Class B |
1810 HK |
31.1 |
24.2 |
5.2 |
4.3 |
0.0% |
0.0% |
17.4% |
18.8% |
Conclusion: Silver Linings in a Bumpy Market
While the landscape for Hong Kong and China equities remains volatile due to unresolved trade and policy issues, the current environment offers significant opportunities for disciplined investors. The combination of undemanding valuations, strong capital market activity, and supportive policy frameworks creates fertile ground for quality stock selection in yield, technology, and consumption themes.
OCBC Investment Research continues to advise close monitoring of geopolitical developments and the HKD peg, while recommending a focus on leading companies with resilient business models and strong policy tailwinds.
