Is the Hong Kong stock market entering a "new revaluation cycle"?

This year is of extraordinary significance for Hong Kong stocks. The Federal Reserve's policy shift not only signals interest rate adjustments but also a global repricing of capital. What is the core of the new round of investment logic?

The recently concluded 2025 Jackson Hole Global Central Bank Annual Meeting may become a landmark event for the current shift in global liquidity. Federal Reserve Chairman Powell sent a clear signal of policy easing at the meeting, pointing out that current inflationary pressures mainly stem from tariff adjustments leading to rising commodity prices. He also noted that such inflation is "clearly visible but may be one-off," and emphasized that the labor market is cooling and economic growth momentum is slowing. Although he did not explicitly commit to a rate cut, the market generally interpreted his stance as dovish. Federal funds rate futures responded rapidly, with the probability of a rate cut in September jumping to over 85%.

Against the backdrop of global monetary policy entering an easing expectation, the reallocation of capital has become the focus of the market. Unlike the "dollar repatriation" during the Federal Reserve's rate hike cycle in recent years, the current liquidity release is more likely to tilt towards markets with both valuation depressions and growth potential. Chinese assets, especially technology and consumer sectors in Hong Kong stocks and A-shares, are now entering the global investors' spotlight.

Looking back at the past two rounds of Federal Reserve rate cut cycles, changes in capital flows often exhibited obvious structural characteristics. After the 2008 financial crisis, global capital flowed massively into emerging markets, driving the revaluation of Chinese assets. During the 2020 pandemic outbreak, the Federal Reserve's zero interest rate policy and large-scale asset purchase programs also supported the resilience of China's capital markets to some extent. Although the current round of rate cut expectations has not yet officially materialized, its impact on global capital flows has already begun to emerge.

According to EPFR Global data, from May to July 2025, global emerging market equity funds recorded net inflows for 10 consecutive weeks, with China-related funds attracting over $12 billion in capital. The Hong Kong stock market has also shown signs of foreign capital returning, with both long-term and short-term funds seeing substantial net inflows. In terms of capital behavior, long-term funds are more inclined to allocate to assets and industries with reasonable valuations and policy certainty, and Hong Kong stocks currently possess both of these characteristics.

As of August 25, 2025, the price-to-earnings ratios of the Hang Seng Index and Hang Seng Tech Index were 11.7 times and 21.1 times, respectively, still with significant room for improvement compared to the 2021 peak. According to the historical percentile statistics over the past 10 years, the Hang Seng Index's valuation is currently at the 65.1st percentile, while the Nasdaq, DAX, and Nikkei are at 80.7%, 87.9%, and 70.8% respectively. Due to the significant recovery of China's economy, the relatively low valuation of Hong Kong stocks appears particularly attractive.

Meanwhile, mainland capital is also continuously increasing its allocation to Hong Kong stocks. Southbound funds, an important channel for mainland investors to allocate to Hong Kong stocks, have seen a cumulative net inflow of over 880 billion yuan this year, and are expected to surpass 1 trillion yuan for the full year. The accelerated inflow of southbound funds not only increases the liquidity of Hong Kong stocks but also greatly enhances the pricing power of mainland capital in the Hong Kong market.

Structurally, the value of allocating to the Hong Kong tech sector is being re-recognized by the market. Hong Kong tech companies are widely distributed across the entire AI industry chain, covering model development, commercial applications, and terminal ecosystems. With continuous breakthroughs in software and hardware technologies, ongoing capital investment by related companies, and deepening of technology reserves and industrial layout, the tech sector is expected to continue benefiting from the dividends of industrial transformation. Data shows that in the Hong Kong tech sector, software and content companies account for a much higher proportion of market capitalization than in A-shares, at 57% and 23% respectively, demonstrating strong growth potential and international competitiveness.

The marginal easing of China-US relations also provides a more stable external environment for the Hong Kong tech sector. The cooling of trade frictions and the relaxation of technology export controls help improve the fundamental outlook for the tech sector and boost foreign investors' confidence in allocation. Although some platform companies have seen downward revisions in profit expectations in the short term due to factors such as the "subsidy war," their positions in AI and digital transformation remain solid in the long run, and the current "bearish" sentiment is likely temporary.

It is worth noting that due to the recent rapid rise in HIBOR rates, there have been some concerns in the market about the liquidity situation of the Hong Kong dollar, but the liquidity environment of Hong Kong stocks has not undergone any substantive changes. The Hang Seng AH Premium Index has continued to decline from 131.54 in mid-June to 122.6 in mid-August, hitting a new low in nearly six years. This change reflects the narrowing valuation gap between Hong Kong stocks and A-shares, and also indicates that liquidity in the Hong Kong stock market remains ample.

The recovery of Hong Kong stocks is not only the result of valuation repair, but also a reaffirmation by global capital of the resilience of China's economy and the stability of its policies. Against the backdrop of continued domestic fiscal policy efforts and the gradual implementation of industrial policies, Hong Kong stocks, as representatives of Chinese assets, are regaining pricing power. Especially in the current context of global industrial chain restructuring and accelerated technology cycles, China's layout in AI, green energy, and digital consumption is gradually transforming into new hotspots and opportunities in the capital market.

In addition, the internationalization of Hong Kong stocks gives them a natural advantage in global capital allocation. Compared to many emerging markets, Chinese assets are more predictable in terms of institutional transparency, market depth, and policy coordination. This not only increases the willingness of capital to enter, but also reduces allocation costs and risk exposure. As global investors seek "certainty," Chinese assets represented by Hong Kong stocks are becoming one of the few investment depressions with both valuation advantages and policy support.

Overall, 2025 is of extraordinary significance for Hong Kong stocks. The Federal Reserve's policy shift not only means interest rate adjustments, but also a global repricing of capital. In this process, the valuation repair, industrial upgrading, and policy stability of Chinese assets constitute the core of the new round of investment logic. For global investors, this is not only a tactical reallocation, but also a potential strategic repositioning. As one of the representatives of Chinese assets, Hong Kong stocks are quietly emerging from the valuation trough and ushering in a new round of capital revaluation cycle.