CMSC International: Expects moderate economic growth in the United States next year, with Hong Kong stocks poised to shift towards profit growth as the main driver.

CMSC International released a research report stating that with the support of factors such as the Fed rate cut and AI investment, the US economy is expected to maintain moderate growth next year. The strategic view on US stocks remains positive, but attention should be paid to structural differentiation and short-term risks in the first quarter. In terms of the outlook for the Hong Kong stock market next year, the bank stated that Hong Kong stocks will transition from valuation repair to profit growth focus. Valuation expansion may weaken, but liquidity remains ample and will not be a drag. By 2026, a pattern combining profit-driven and liquidity-supported factors will emerge, with "new supply creating new demand" becoming a new driver in the Hong Kong stock market. The bank also pointed out that the new economy supports the fundamental driving force behind Hong Kong stocks. The internal and external policy environment is positive. Loose liquidity in both China and the US resonates, with new supplies of foreign capital and southbound funds translating into new demand for Hong Kong stocks. However, the valuation of Hong Kong stocks is not high. Based on calculations of improvement in return on equity (ROE) for the Hang Seng Index, with profit growth of 6% to 10% and a price-to-earnings ratio of 12 to 13 times, the potential upside for the Hang Seng Index next year is likely to be between 10% and 15%. At the industry level, CMSC International believes that the US technology sector will become more rational, with AI remaining a key driver, and the regulatory environment being favorable for mergers and acquisitions. Positive progress in AI will continue to drive cloud business revenue and valuation growth in the Chinese internet sector. The domestic pharmaceutical and innovative drug sectors are expected to benefit from accelerated mergers and acquisitions by large multinational pharmaceutical companies, as well as the emergence of more BD transactions in the market. Several companies in the medical device sector are expected to reach a turning point in performance from the fourth quarter of this year to the first quarter of 2026, achieving a resonance between performance growth and valuation recovery. The bank also stated that it expects flat or slightly lower sales in the automotive industry next year, with market sentiment already pessimistic enough. Now is the opportunity to gradually absorb companies with high certainty of performance growth next year. Recommended stocks include Siasun Robot & Automation and the intelligent driving sub-sector with accelerating production next year; the recovery in the consumer sector remains uneven, and a strategy of "anchoring earnings with growth as the wing" is advised; positive outlook on the resilience and expansion opportunities in the education sector. CMSC International's top picks for the first quarter of next year are: Alphabet (GOOGL.US), Meta (META.US), Netflix (NFLX.US), TENCENT (00700), Alibaba Group Holding Limited Sponsored ADR (BABA.US), Bilibili, Inc. Sponsored ADR Class Z (BILI.US), HANSOH PHARMA (03692), KEYMED BIO-B (02162), INNOVENT BIO (01801), ABBISKO-B (02256), Shenzhen Mindray Bio-Medical Electronics (300760.SZ), ShenZhen New Industries Biomedical Engineering (300832.SZ), GEELY AUTO (00175), BYD COMPANY (01211), XPeng, Inc. ADR Sponsored Class A (09868), UBTECH ROBOTICS (09880), HORIZONROBOT-W (09660), MINTH GROUP (00425), POP MART (09992), YADU (ATAT.US), Estee Lauder Companies Inc. Class A (EL.US), LI NING (02331).