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Hong Kong & China Stock Markets: Investment Case for 2026

January 2026 – 6 min read

Hong Kong and China stock markets are nearing a pivotal moment, driven by secular trends, policy support and evolving global dynamics. The key investment themes of the region are technological innovation, sectoral transformation, consumer opportunity and market structure.

Technology as a National Priority

AI, Semiconductors & Localization

China’s unwavering commitment to technological advancement remains at the heart of its forward-looking investment agenda. Artificial intelligence (AI) is poised to become a transformative force, driving productivity gains in an economy where the workforce has already peaked and is now shrinking. Amid this backdrop, government industrial policy continues to prioritize foundational sectors, including semiconductors, foundries, memory and analogue components. In turn, Chinese equity markets are increasingly benefiting from this trend, with a diverse pipeline of technology IPOs enhancing the breadth and depth of investment opportunities.

China’s domestic AI models are rapidly narrowing the gap with their U.S. counterparts, achieving near-parity in a range of practical applications, from language processing to image and video analysis. This progress is mirrored in the local ecosystem’s surge in innovation, driven by both large-scale and specialist developers working across verticals such as voice, video and image recognition. The localization of technology—reducing reliance on foreign suppliers and cultivating indigenous platforms—has become a strategic imperative, further supporting sustainable, long-term growth.

Figure 1: China’s AI Models Are Reaching Parity With the U.S.

hong-kong-china-chart1.jpgSource: Jefferies. As of November 2025.

Figure 2: China’s Localization Efforts Are an Important Driver of Growth & Innovation

hong-kong-china-chart2.jpgSource: Gartner, WSTS, SIA, Company Data, Morgan Stanley research. As of November 2025. E = estimates.

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Headshot of William Fong smiling at the camera.

William Fong, CFA

Head of Hong Kong China Equities

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In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

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Forecasts in this document reflect Barings’ market views as of the preparation date and may change without notice. Projections are not guarantees of future performance. The value of investments and any income may fluctuate and are not guaranteed by Barings or any other party. Examples, portfolio compositions, and investment results shown are for illustrative purposes only and do not predict future outcomes. Actual investments may differ significantly in size, composition, and risk. No assurance is given that any investment will be profitable or avoid losses. Currency exchange rate fluctuations may impact investment value.

Investments involve risks, including potential loss of principal. Past performance is not indicative of future results. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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