Bank of East Asia lowered its year-end Hang Seng Index target to 27,100 points, down from an initial forecast of 29,000 points, citing weaker-than-expected second-quarter economic data from mainland China and slower profit recovery in heavyweight technology and consumer stocks. The HSI has fallen 10% year-to-date, underperforming external markets. Despite the downward revision, the index's NTM forecast P/E ratio stands at 10.2 times, slightly below the 10-year average of 10.5 times, indicating valuation remains attractive. The bank adjusted its full-year HSI earnings forecast from HK$2,300 (up 10% year-on-year) to HK$2,260 (up 5% year-on-year).
Bank of East Asia Adjusts Hang Seng Index Earnings Forecast
Chief Investment Strategist at Bank of East Asia, Pang Wai-wai, stated that the earnings forecast revision reflects weaker second-quarter economic data and slower-than-anticipated profit recovery in technology and consumer stocks. The bank now projects full-year HSI earnings at HK$2,260, representing a 5% year-on-year increase, down from the prior estimate of HK$2,300 with 10% growth. Pang noted that a rebound in consumption or positive economic developments in China could support a recovery in Hong Kong stocks in the second half of the year.
Target P/E Ratio Lowered Amid Policy and Rate Concerns
The bank reduced its NTM forecast P/E ratio for the Hang Seng Index from 12.6 times to 12 times. The adjustment accounts for rising expectations of US interest rate hikes, increased policy uncertainty surrounding mainland China's restrictions on cross-border investment, and intensified competition in AI models and applications within China. The current NTM P/E of 10.2 times remains slightly below the 10-year average of 10.5 times.
AI Semiconductors and Industrial Equipment Highlighted as Key Sectors
Pang identified AI semiconductors and network infrastructure equipment as key focus areas for the Hong Kong stock market. He explained that progress in domestic semiconductor manufacturing and breakthroughs in process technology, supported by national policies, are expected to accelerate the replacement of AI chips with domestic alternatives. Large technology companies continue to report strong revenue growth in AI cloud services, with room for price increases. Orders from overseas AI firms remain robust, driving volume and price gains in memory chips, optical interconnect devices, and PCBs.
Mainland industrial equipment also drew attention due to policy-driven investment in the "Six Networks" initiative, which is expected to expand demand for new power and energy storage equipment, telecommunications network devices, and heavy construction machinery. Export and overseas business growth has been rapid, with profit margins generally higher than in the domestic market.
FAQ
Why did Bank of East Asia lower its year-end Hang Seng Index target?
The bank lowered its year-end HSI target to 27,100 points due to weaker-than-expected second-quarter economic data from mainland China and slower profit recovery in heavyweight technology and consumer stocks. The full-year earnings forecast was revised down to HK$2,260, reflecting a 5% year-on-year increase instead of the previously projected 10%.
Which sectors does Bank of East Asia recommend for Hong Kong stocks?
The bank highlights AI semiconductors and network infrastructure equipment as key sectors, citing policy support for domestic chip substitution and strong AI cloud revenue growth. Mainland industrial equipment is also recommended due to "Six Networks" policy-driven demand for power, energy storage, telecommunications, and heavy machinery, with higher profit margins in export markets.
