Hong Kong's stock rally still has room to run on 'reasonable' valuations, Templeton says

Hong Kong stocks remain favourable, as attractive valuations and easing tariff uncertainty have enhanced the predictability of corporate earnings on the city's stock market, according to US fund manager Franklin Templeton.

The firm, which manages US$1.5 trillion of assets worldwide, was "constructive" on Hong Kong and mainland China's stock markets, as the valuations remained reasonable and Beijing had introduced supportive policies, said Ferdinand Cheuk, portfolio manager at Templeton Global Equity Group, on Wednesday in a briefing.

While the city's benchmark Hang Seng Index had surged more than 25 per cent so far this year, outperforming major indices globally, the momentum could be maintained through stock selection and positioning in certain sectors, he said.

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The average price-to-earnings ratio among Hong Kong stocks stood at around 10.8 times, slightly above the 10-year average of 10.4 times, Cheuk said. By comparison, the constituents of the Standard & Poor's 500 index traded at an average of 25 times, while Nasdaq stocks averaged 35 times, according to Bloomberg's data.

Ferdinand Cheuk Siu-yuen, Senior Vice-President and Portfolio Manager at Templeton Global Equity Group, during the Franklin Templeton press conference on January 16, 2019. Photo: Tory Ho alt=Ferdinand Cheuk Siu-yuen, Senior Vice-President and Portfolio Manager at Templeton Global Equity Group, during the Franklin Templeton press conference on January 16, 2019. Photo: Tory Ho>

In addition, the decreasing uncertainty from the US-inflicted trade tensions would be helpful for fund managers and investors to predict companies' earnings, Cheuk said.

"We believe it is fair to say that the risks from Trump's current trade war and trade policies will diminish in the future," said Christy Tan, investment strategist at Franklin Templeton Institute, at the same briefing. Tan added that the US tariffs on China's imports were largely expected to be below 40 per cent.

On Tuesday, US Treasury Secretary Scott Bessent said that the status quo situation with China was progressing well after the world's two biggest economies extended a truce last week in their trade dispute surrounding tariffs.

Franklin Templeton's analysts were bullish on China's technology sector. Internet giants like Tencent were trading at a reasonable price-to-earnings and were still worth investors' attention, Cheuk said.

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"While there are indications that China's economy may be experiencing a temporary slowdown, we believe that China is progressing along a well-defined path of technological advancement," Tan said.

China was constructing a robust robotics industrial ecosystem, and the development of pan-humanoid robot applications was advancing rapidly, she said.

Since the start of the year, Beijing had introduced more supportive policies for the private sector, highlighted by China's 'DeepSeek moment', which gave a lift to the technology industry, Tan added.

Over the medium to long term, protectionist sentiment worldwide was also expected to stay strong, encouraging China and other Asian economies to further develop their own technological capabilities, according to Tan.

Cheuk also highlighted some banking stocks, whose businesses were boosted by wealth management opportunities, despite the potential for lower interest rates to impact their interest income.

On Chinese biotech companies, many of which had seen their share prices surge, Cheuk said some structural tailwinds remained strong as many multinational pharmaceutical companies were approaching a "patent cliff" with blockbuster drugs losing exclusivity by 2026 and 2027. They were increasingly looking at licensing early-stage assets from China, which offered a faster, lower-risk alternative to in-house discovery.

However, "investors should be aware that some stocks are currently priced in business development opportunities that have not yet occurred", he said.

On Hong Kong's real estate sector, Cheuk said the city's stable financing costs and population growth should support the sector generally.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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