On July 30, 2026, the world's largest asset manager BlackRock released its latest global asset allocation report, upgrading Hong Kong stocks from 'neutral' to 'overweight'. It noted the Hang Seng Index P/E ratio has fallen below 9x, P/B ratio at 0.9x—both near decade lows—while the dividend yield has climbed to 4.2%. With the deepening of the Stock Connect mechanism, HK stocks have become one of the most cost-effective equity markets globally.
BlackRock report core view: dual confirmation of valuation and yield bottoms
BlackRock's Asia-Pacific chief investment strategist stated that current HK stock valuations fully reflect macro slowdown, earnings downgrades, and geopolitical premiums, while fundamentals have not deteriorated systemically. The 12-month forward P/E of the Hang Seng Index is only 8.7x, lower than the 9.5x during the 2008 financial crisis and the 9.2x after the 2016 HK stock 'crash'. Meanwhile, the dividend yield of 4.2% far exceeds the S&P 500's 1.5% and the global average of 2.8%. BlackRock believes the oversold level and return potential of HK stocks are sufficient to attract long-term capital flows.
In fact, before BlackRock's report, southbound funds had recorded net inflows for 16 consecutive days, with cumulative net buying exceeding HK$60 billion in July, focusing on high-dividend blue chips and internet leaders. As of July 29, the Hang Seng Index was still down about 3% year-to-date, but the Hang Seng High Dividend Yield Index had risen 8% against the trend, reflecting capital's pursuit of stable returns.
Low valuation + high dividends: core advantages of HK stocks strengthened
Compared with major global markets, HK stocks' low valuation advantage is extremely prominent. The current Hang Seng Index P/E of 8.9x is significantly lower than the CSI 300's 12.5x, the S&P 500's 22x, and the Nikkei 225's 16x. In terms of P/B, HK stocks are in a 'below net asset value' state (0.9x), meaning they trade at a discount to book value. Traditional sectors like finance, real estate, and energy have single-digit P/E ratios.
High dividends are another major attraction. Over 70% of Hang Seng Index constituents have paid dividends for three consecutive years. Dividend yields in finance, telecom, and utilities generally exceed 5%. For example, HSBC Holdings (00005.HK) has a dividend yield of about 6.5%, China Mobile (00941.HK) over 7%, and PetroChina (00857.HK) nearly 8%. Such stable cash returns are especially valuable amid increased market volatility.
Stock Connect upgrade: mainland funds continue southbound 'bargain hunting'
The Stock Connect mechanism, the main channel for mainland investors to allocate HK stocks, has been continuously optimized. By end of 2025, the eligible stock scope for Shanghai-HK and Shenzhen-HK Stock Connect was further expanded to include more small-mid cap and biotech companies; meanwhile, the allocation cap for mainland public funds and insurance funds through Stock Connect was raised to 50%. In July 2026, average daily turnover via Stock Connect reached HK$48 billion, accounting for 18% of total HK stock turnover, up 3 percentage points from the previous year.
BlackRock's report also noted that the structure of southbound funds is shifting from retail to institutional dominance, and long-term capital inflows will reduce HK stock volatility. Insurance funds have strong demand for high-dividend, bond-like HK blue chips, while social security funds prefer utilities with stable cash flows. This shift in fund structure is expected to gradually lift the valuation center of HK stocks.
Complementarity between HK stocks and A-shares: a natural choice for diversification
From an asset allocation perspective, the correlation coefficient between HK stocks and A-shares is about 0.6-0.7, not fully synchronized. HK stocks are more affected by overseas liquidity, while A-shares are more driven by domestic policies. Holding both HK stocks and A-shares can effectively diversify single-market risk. In addition, HK stocks offer many scarce targets not available in A-shares, such as internet platforms (Tencent, Meituan, Kuaishou), innovative drugs (BeiGene, Innovent Biologics), and local HK financial and real estate stocks. These companies cannot be directly invested in via A-shares, making Stock Connect the only channel.
Risk warning: currency and geopolitical uncertainties remain
Despite the clear allocation value, investors should note unique risks of HK stocks. First, currency risk: the Hong Kong dollar is pegged to the US dollar, but continued depreciation of the RMB against the USD could erode mainland investors' actual returns in RMB terms. Second, geopolitical risk: US-China relations and HK policy changes may trigger short-term market shocks. In addition, HK stock liquidity is highly polarized, with daily turnover of small-cap stocks below HK$1 million; prioritizing large-cap blue chips is safer.
Conclusion: current time is right for HK stock allocation, focus on long-term positions
Combining BlackRock's report and current market data, HK stocks are at a historic valuation trough. High dividends provide a safety margin, while southbound fund inflows and Stock Connect upgrades bring incremental liquidity. For mainland investors, allocating to HK blue chips and high-dividend ETFs via Stock Connect can capture valuation recovery gains and optimize the overall portfolio's risk-return profile. It is recommended to focus on the Hang Seng High Dividend Yield Index and individual stocks with dividend yields above 5% in the Stock Connect universe, adopting a long-term holding approach to cope with short-term volatility.
