Hong Kong and Mainland China Stocks Extend Gains as Policy Support and Capital Flows Reshape Market Outlook

Mainland China’s equity performance has been underpinned by targeted policy easing and regulatory recalibration. Authorities have rolled out incremental fiscal support, relaxed some restrictions on property financing, and signaled a more predictable stance toward the private sector, particularly in technology and consumer-facing industries. These measures have helped arrest capital outflows and stabilise valuations, especially in large-cap stocks linked to industrial upgrading, advanced manufacturing, and state-backed infrastructure. While domestic consumption remains uneven, investors increasingly view downside risks as more contained than in previous years.

Hong Kong’s market has benefited from both external and internal factors. Expectations of global interest rate cuts have improved risk appetite for equities broadly, while Hong Kong’s role as a conduit for mainland capital has regained relevance. Southbound flows through the Stock Connect programme have increased, reflecting mainland investors’ search for diversified exposure and comparatively attractive valuations. Financials, energy, and select technology names have led gains, supported by improved earnings expectations and dividend appeal.

Despite the positive momentum, the recovery remains selective rather than broad-based. Smaller-cap stocks and sectors closely tied to household consumption continue to lag, reflecting ongoing caution among consumers and businesses. Property developers and related industries, while showing signs of stabilisation, are still constrained by balance sheet repair and weak demand. As a result, market performance increasingly reflects differentiation based on balance sheet strength, policy alignment, and exposure to long-term national priorities rather than broad cyclical beta.

Looking ahead, the outlook for Hong Kong and mainland equities hinges on execution rather than intent. Investors will be watching whether policy support translates into sustained earnings growth, whether capital market reforms continue to improve liquidity and governance, and whether geopolitical risks remain manageable. While structural challenges persist, the prospect of back-to-back annual gains suggests that Chinese equities may be transitioning from deep pessimism toward a more balanced and selective re-rating phase.