By Sherry Qin and Tracy Qu
Hong Kong stocks ended 2025 with a second consecutive annual gain, posting their best performance since 2017 in percentage terms, thanks to a tech rally fueled by artificial intelligence.
The city's benchmark Hang Seng Index finished the year up 28%, making it one of Asia's best performing markets.
In Mainland China, the benchmark Shanghai Composite Index rose 18% for the year, marking its strongest performance since 2019, after reaching its highest closing level in a decade in August. The Shenzhen Composite Index 29%, while the tech-heavy ChiNext Price Index surged 50%.
China's advances in artificial intelligence, its continued push for technological self-reliance and resilience in global trade have helped boost investor confidence, easing concerns over weak domestic demand and persistent deflation.
China's goods trade surplus topped $1 trillion for the first time in the year through November, underscoring the strength of its manufacturing base despite President Trump's steep tariffs on Chinese goods.
Investor sentiment was further buoyed by a trade truce reached in October following the first face-to-face meeting in six years between President Trump and Chinese leader Xi Jinping.
"A one-year trade truce--albeit temporary--is positive for sentiment as it reduces concerns around the uninvestability" of Hong Kong and China stocks, Nomura analysts said in a research note.
Despite lingering geopolitical uncertainty, Chinese tech stocks have shone this year since the so-called "DeepSeek moment" in January, when the Chinese startup released a large language model seen as a rival to OpenAI's ChatGPT. Beijing has since made technological self-sufficiency a priority in its next five-year plan beginning in 2026, further fueling investor enthusiasm surrounding artificial intelligence.
"AI has changed the game for Chinese tech equities," Goldman Sachs analysts said in a recent note.
Alibaba Group and Tencent Holdings, widely seen as proxies for China's AI development, rose 73% and 43.65%, respectively. Baidu, which operates the AI chatbot Ernie Bot, gained 59% over the year.
Trade relations between the two countries remain strained as Beijing's top cybersecurity regulator earlier in the year urged big tech companies not to buy Nvidia's chips. Chinese chipmakers have emerged as major beneficiaries of that development.
Shares of SMIC, China's largest contract chip maker, more than doubled in Hong Kong this year. Moore Threads and MetaX, two Chinese AI chip startups that made blockbuster market debuts earlier this month, ended the year up more than 400% from their listing prices.
The AI frenzy has also driven a fresh wave of listings, spanning companies involved in large language models, robotics and biotechnology. Hong Kong reclaimed the top spot in the global IPO market for the first time since 2019, according to a recent KPMG report.
"We expect this upward trend to continue into 2026," said KPMG China's Paul Lau. "In particular, the pace of AI-related listings is poised to accelerate as the technology matures and is adopted more widely across various industries."
Chinese AI model developers MiniMax and Zhipu have already secured IPO slots for January 2026.
Still, risks remain. China Vanke's recent struggles, including a near-default and request for debt extensions, have renewed concerns that the country's prolonged property downturn has yet to bottom out. Hong Kong's Hang Seng Mainland Properties Index ended the year up 5.2%, lagging the broader market.
As startups rush to go public, artificial intelligence is set to remain a dominant theme for Chinese and Hong Kong markets in 2026. Analysts say a sustained rally will also hinge on whether China can revive domestic demand and stabilize its property sector.
After two consecutive years of positive returns, China has shown global investors that it remains investible, with a slow bull market likely in the making, the Goldman analysts said.
Write to Sherry Qin at sherry.qin@wsj.com and Tracy Qu at tracy.qu@wsj.com
(END) Dow Jones Newswires
December 31, 2025 03:23 ET (08:23 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
