Asia Perspectives - 2026/2027 Hong Kong Budget: Improved public finance with sustained growth momentum

Highlights: The 2026/2027 budget suggests Hong Kong will stay on course to enhance integration between Hong Kong and mainland China following the direction set by China’s 15th Five-Year Plan. A bright spot is that the resilient stock market and the better economy have alleviated concerns about Hong Kong’s public finance, in our view. There were no major gamechanger policies on Hong Kong property, but we believe there are a number of tailwinds which could accelerate the recovery. We think Hong Kong domestic stocks valuation remains inexpensive relative to global equities, with consensus expecting overall earnings to increase 10 per cent in 2026. The market’s average dividend yield is currently at 3.5 per cent, which we feel remains solid.

• In our view, the 2026/2027 budget did not deliver any major shift in economic policy focus. Rather, we felt it provided enhancements to ongoing initiatives and complementing those highlighted in the policy address delivered last September – further enhance integration between Hong Kong and mainland China, as well as improve the livelihood of the economy. On the connectivity side, Hong Kong should continue to move forward with China’s 15th Five‑Year Plan to enhance its status as an international financial, shipping and trade centre, and develop as the international and digital and healthcare technology centre for China
• The resilient stock market and the better economic growth have alleviated concerns about Hong Kong’s public finance, in our view. Revenue from stamp duties and profits tax has increased by HKD50 billion compared to the government’s original estimate. With this additional revenue, before the net issuance of government bonds of HKD103.3 billion, consolidated budget deficit is estimated to be HKD100.4 billion for this fiscal year (significantly below the original estimate of HKD162.8 billion). Looking forward, the Financial Secretary (FS) forecasts the budget deficit will stay on an improving trend, on track to fall to HKD78.2 billion in the next fiscal year
• There were no major gamechangers in terms of policies on the Hong Kong property sector in this year’s budget. The Hong Kong housing market has seen signs of bottoming out last year, and we believe there are a number of tailwinds which could accelerate the recovery this year
• We think Hong Kong domestic stocks valuation, currently at 12-month consensus forward P/E ratio of 15.7x, remains inexpensive relative to global equities, and is at par with its 5-year average of 15.3x. While growth in Hong Kong will likely be more diversified this year, Bloomberg consensus expects overall earnings to increase 10 per cent in 2026. The market’s average dividend yield is currently at 3.5 per cent, which we feel remains solid