Middle East tensions not likely to disrupt recovery for Hong Kong stocks: Citigroup
Citigroup says instability in the Middle East could spur US-based fund managers to redirect investments to mainland China and Hong Kong
The US bank said it expected Hong Kong’s benchmark to climb to 26,000 in the first half of 2026, assuming geopolitical tensions eased and policy support remained steady.
“China faces deflationary pressures rather than inflation, so even if imported energy costs rise, the pass-through effect on corporate earnings is expected to be minimal,” said Pierre Lau, China equity strategist at Citigroup. “In that context, a modest increase in energy costs is not necessarily negative.”
He added that greater geopolitical uncertainty could prompt US-based fund managers to direct more capital to mainland Chinese and Hong Kong assets.
In terms of sectors, Citigroup upgraded mainland consumer stocks to overweight from neutral, citing their relative insulation from tariffs and the likelihood of benefits from government subsidies and stimulus measures like consumption vouchers. But the bank downgraded the transport sector to neutral due to the negative impact of higher global freight costs amid trade tensions.
The Hong Kong stock market rebounded from multi-year lows earlier this year, with the Hang Seng Index rising 16 per cent year-to-date, outperforming major global gauges. The index has been supported by a recovery in southbound inflows, improving risk appetite and a pickup in initial public offering (IPO) activity, Citigroup said.