UOB Kay Hian Private Wealth Management
Date of Report: July 28, 2025

Hong Kong Stocks and China’s New Economy: 2025 Outlook, Stock Picks, and Key Investment Themes

Introduction: Navigating the 2025 Investment Landscape

UOB Kay Hian’s latest research report explores the evolving dynamics of the Hong Kong market and China’s “New Economy,” offering investors a detailed analysis of capital flows, policy direction, sector opportunities, and standout stock picks for the second half of 2025. With global equities facing tariff risks and the world moving toward de-dollarization, Hong Kong stocks—predominantly RMB-backed despite their USD asset status—emerge as a critical asset class for forward-looking investors.

Capital Flows: Southbound Inflows and Foreign Investor Sentiment

– Southbound inflows from mainland China have been the main driver behind Hong Kong’s strong rally in 2025. – Not all sectors benefit equally: – Biopharma, internet, and electronics have seen robust inflows. – Electric vehicles (EVs, e.g., BYD, Xiaomi), banks, and insurance have not experienced significant increases in southbound holdings, implying local funds and foreign capital are stepping in. – Loose liquidity in mainland China supports this trend, with signs that foreign investors are returning as their market outlook improves.

Policy Trends: Focus on New Economy and Fiscal Support

– Policy support has lagged expectations in 2025, reflecting China’s commitment to ongoing economic reforms. – The government remains reluctant to overstimulate traditional sectors (especially real estate). – Strategic focus is on: – New technologies and industries – AI-related infrastructure – Consumption subsidies (notably trade-in programs) – The high-profile Yarlung Tsangpo hydropower project highlights China’s strategic approach to development. – With an additional RMB 1 trillion fiscal balance for the year, China has ample room for further fiscal expansion—more stimulus is expected in the second half of 2025.

Fundamentals: Resilience Amid Headwinds

– Real estate and broad consumer spending remain weak. – Despite new tariffs, China’s exports and trade surplus continue to grow. – Industrial production and electricity consumption remain robust. – Resilience is driven by the rise of globally competitive Chinese brands expanding into international markets.

Sector and Stock Analysis: Where the Opportunities Lie

AI, Innovative Drugs, and New Consumption Trends

Analysts are especially bullish on sectors such as AI applications, innovative pharmaceuticals, and emerging consumption trends—areas benefiting from policy focus and structural change.

Xiaomi Corp (1810.HK)

– A global leader in smartphones, home appliances, and EVs. – Key player in consumer AI applications. – Boasts a strong integrated ecosystem and is leveraging AI and IoT for growth. – 2025 EPS growth projected at 72%, with a forward 12-month PE of 27.4x and ROE of 18.7%.

Akeso Inc (9926.HK)

– Represents China’s biopharma innovation and international expansion. – Focused on developing innovative drugs for high-difficulty, major global diseases. – Despite current negative EPS growth (-108% in 2025), Akeso is building a robust drug pipeline and growing its overseas business.

Pop Mart International (9992.HK)

– A standout in the new consumption trend, driven by social media and short video platforms. – Specializes in collectible toys and “blind box” culture, capturing young consumers. – 2025 EPS growth expected at 166%, with a forward PE of 29.2x and impressive forward ROE of 50%.

Laopu Gold Co L-H (6181.HK)

– Another beneficiary of new consumer trends and social media-driven brand building. – 2025 EPS growth of 170%; forward PE of 22.6x and an exceptional ROE of 57%.

Eastroc Beverage -A (605499.CH)

– Successfully riding the wave of emerging domestic beverage brands and changing consumption patterns. – 2025 EPS growth at 37%, with a forward PE of 29.6x and ROE of 44.6%.

Structured Note and Equity-Linked Note Opportunities

UOB Kay Hian highlights tactical opportunities via structured notes and equity-linked notes on recommended stocks. For example:
FCN on Xiaomi Corp (1810 HK):
Tenor: 6 months
Coupon: Up to 15% p.a., paid monthly
Knock-out and strike levels at 100%
Designed for investors with a bullish outlook or willingness to acquire shares at a strike price
Risks include underlying price declines and issuer credit risk.
Other equity-linked notes are available on major global and China stocks, offering varied yields and risk-return profiles. Examples include Broadcom, Alibaba, Nvidia, Galaxy Entertainment, Trip.com, Occidental Petroleum, Meta Platforms, Amazon, Petrochina, Walmart, Microsoft, HSBC, Berkshire Hathaway, China Mobile, and more.

Model Portfolios: ETF, US, and China Core Recommendations

All ETF Portfolio (Global Asset Allocation)

– Total YTD return: 14.4% – Major holdings: – SPDR S&P 500 ETF Trust (SPY US): 11.6% – Schwab US Dividend Equity ETF: 4.1% – Energy Select Sector SPDR: 3.9% – Invesco QQQ Trust: 5.5% – CSOP FTSE China A50 ETF: 5.1% – Hang Seng China Enterprises Index: 3.0% – 49.4% in bonds (US Aggregate, Vanguard Short-Term Corporate), 10% in gold, 7.4% cash

US Stock Model Portfolio

Key Core Recommendations: – Broadcom Inc (AVGO US), Energy Select Sector SPDR (XLE US), Nvidia (NVDA US), Amazon (AMZN US), Berkshire Hathaway (BRK/B US), Microsoft (MSFT US), Meta Platforms (META US), Schwab US Dividend Equity ETF (SCHD US), Occidental Petroleum (OXY US), Walmart (WMT US) – Trading Buys include Applovin (APP US), Conocophillips (COP US), Qualcomm (QCOM US), SPDR S&P 500 ETF (SPY US) – Overall US Dollar cash holding: 42.2% – Portfolio inception return: 42.5%

China Stock Model Portfolio

Core Recommendations and Trading Buys: – Top weights: China Resources Land, Tencent, Petrochina, Galaxy Entertainment, CSOP FTSE China A50 ETF, Alibaba, HSBC, China Mobile, Trip.com, Sands China, China Construction Bank, China Resources Beer, Kweichow Moutai, Bosera Csoe Hidv ETF, JD.com, Innovent Biologics, Xiaomi, Chongqing Machinery, Meituan, iShares MSCI China ETF – Notable returns: Innovent Biologics (143.6% since inception), Xiaomi (66.4%), Chongqing Machinery (83.0%), Tencent (33.2%) – Portfolio inception return: 30.3%

Key Upcoming Events: Market Watches for the Week

– World AI Conference, Shanghai (Jul 26-28) – Senior US-China trade talks in Stockholm (Jul 28-29) – China Politburo meeting (Jul 28-31) – FOMC Rate Decision (Jul 29-30) – Corporate earnings: Microsoft, Meta, Qualcomm, Amazon, Apple, HSBC, and others – New US tariffs and Hong Kong Stablecoin Ordinance take effect August 1 – Macro data releases: China PMI, US labor data, Macau casino revenue

Conclusion: Strategic Positioning for the Second Half of 2025

The Hong Kong and China equity markets are entering a new chapter, driven by robust southbound inflows, policy support for new economy sectors, and the resilience of Chinese brands on the global stage. Investors seeking growth opportunities should focus on AI, innovative healthcare, and emerging consumer sectors, while tactical plays via structured notes and diversified portfolios provide risk-managed access to these trends.
For further portfolio details, investors are encouraged to review the full model portfolios and note the importance of tailored advice considering individual financial objectives and risk profiles.