Hong Kong/China Stock Market—The Narrative Is Quietly Shifting

Providing valuable stability in a world of currency devaluation. The Hong Kong/China stock markets have seen solid foreign capital inflows this year, benefiting from broader capital reallocation toward emerging markets. The “devaluation” trend is mainly driven by structural weakness in the US dollar, due to rising US policy uncertainty (which questions the dollar’s reliability as a global currency) and worsening fiscal conditions. The US-Iran conflict has temporarily boosted the dollar as a safe haven. However, DBS Group believes these devaluation drivers will continue to develop, and once settled, the dollar may resume its weakening trend.

In fact, DBS Group believes that as the dollar resumes its decline, Hong Kong/China stocks could become one of the most attractive regions for foreign investment. China, in particular, is among the least affected countries in Asia by the oil price surge caused by the Strait of Hormuz crisis. Diversification and electrification of energy sources make China less vulnerable to energy crises; over the past twenty years, per-unit GDP crude oil consumption has decreased by about 45%. Ample strategic reserves and stable pipeline supplies from Russia also provide buffers. This contrasts with Japan, South Korea, and India, which face more noticeable pressures. Meanwhile, China’s relatively stable dynamics are increasingly attracting long-term capital allocation.

A turning point may be on the horizon. However, all these factors do not guarantee a smooth road ahead, and markets will continue to demand more evidence. Continued consumer recovery, clearer signs of stability in the real estate market, and tangible progress in implementing the “14th Five-Year Plan” will be true tests. Geopolitical risks, prolonged disruptions in the Strait of Hormuz, or renewed trade tensions could still hinder China’s stability and recovery. Nonetheless, exports, inflation, pragmatic policy support frameworks, and characteristics less affected by global energy turmoil all point in the same direction: China’s fundamentals may be nearing a turning point and are better than the market’s generally pessimistic expectations. Valuations remain attractive, with Hong Kong/China stocks trading at forward P/E ratios about 30% lower than developed and emerging markets, offering a margin of safety and presenting more attractive risk-reward profiles in global equities. For investors willing to overlook headline news, Hong Kong/China stocks are quietly evolving from strategic trades into core holdings for 2026.

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