The Hang Seng China Enterprises Index may rise 21% in calendar year 2025, HSBC strategists including Herald van der Linde and Prerna Garg wrote in a note. They raised their year-end estimate for the index to 8,800 from the previous forecast of 8,610.

The strategists also raised Hong Kong to overweight from neutral, while downgrading India to neutral. Korean stocks were raised to neutral from underweight. 

Their rating changes come as Chinese stocks are off to a weak start this year amid concerns over rising geopolitical tensions stemming from Donald Trump’s return and his vows to raise tariffs. The broader MSCI China Index is down 19% from an October peak, approaching a bear market.

Still, lower interest rates, along with initiatives to boost tourism and revive the ailing local property sector, will support Hong Kong’s stock market, HSBC strategists said. 

“The prospects for mainland China’s economy have improved and the recent shift in policy tone affirms the government’s determination to stabilize the economy,” they said. “This bodes well for the A-share market, and we think Hong Kong market will be an extended beneficiary.”

While there are expectations for further stimulus, concerns remain over the strength of the country’s economic recovery, with some market watchers sounding the alarm on a deflationary spiral similar to what Japan experienced in the 1990s.

Investors are now looking to the National People’s Congress meeting in March for Beijing’s 2025 growth target and detailed plans to boost consumption.

In January last year, HSBC forecast gains of about 24% for the HSCEI gauge in 2024. The index ended the year with a 26% advance.

“Recent policy initiatives suggest that the risk of an immediate drop in earnings growth has been averted,” the strategists wrote in their current note. “This is critical for mitigating tail risks and restoring market confidence at a time when households are sitting on over $20 trillion of cash savings.”

HSBC’s upbeat view stands in contrast with some of its peers such as Goldman Sachs Group Inc., which downgraded Hong Kong stocks to underweight in November due to the weak property and retail sectors. Morgan Stanley is also bearish on Chinese shares given deflationary pressures and rising geopolitical tensions.

Meanwhile, HSBC also lowered its recommendation on India to neutral from overweight, citing a domestic slowdown and elevated valuations that may limit returns this year.

The rally in the Nifty 50 Index has lost steam in recent months due to softer corporate earnings and a retreat of foreign funds. The Indian government this week lowered its economic growth projection for the fiscal year to the weakest since the pandemic.

South Korean stocks were upgraded by HSBC to neutral from underweight as the recent selloff provides a “good opportunity” to raise exposure. The political change in the nation should have little impact on earnings, the HSBC strategists said.