Major Bank Report | East Asia Downgrades This Year’s Hang Seng Index Target to 29,000, Most Bearish Test of 23,000

BOC Hong Kong released its 2Q 2026 outlook report. Under its base-case assumptions—that the Middle East conflict could ease within the next 4 to 6 weeks, and Brent crude prices would fall to below US$90 per barrel—the bank trimmed its 2026 Hang Seng Index target from 30,800 points to 29,000 points. Short-term fluctuations are seen as an opportunity to accumulate.

Under the base case, the bank lowered its 2026 Hang Seng Index earnings forecast from RMB2,350 (up 13% year over year) to RMB2,300 (up 10% year over year); and reduced its NTM forecast P/E multiple from 13.1x to 12.6x.

Sectors or themes it favors include AI cloud platforms, advanced semiconductors, humanoid robots, copper and gold mines, photovoltaic and energy storage equipment, new consumer products in Mainland China, Mainland insurance, Hong Kong real estate, and Hong Kong transportation and logistics.

The bank said that under the downside scenario—assuming the Middle East conflict worsens or continues into 3Q, with Brent (Brent crude) rising to US$120 per barrel and staying at that level through 3Q—it would cut its 2026 Hang Seng Index earnings forecast from RMB2,350 (up 13% year over year) to RMB2,200 (up 5% year over year); and lower its NTM forecast P/E multiple from 13.1x to 11x.

Under the downside scenario, East Asia would cut its Hang Seng Index target from 30,800 points to 24,200 points. In 2Q, it is expected to face an adjustment of more than 10%, meaning a retest of 23,000 points. In the short term, hedging sectors or themes include upstream energy and oil and gas equipment, tanker shipping, coal, new-energy power generation and energy storage, new energy vehicles, Mainland banks, and local utilities.

The report said that tail risks at the back end of the oil price surge are intensifying, and in the near term the Hong Kong equity market is expected to come under pressure and lag the A-share market. The United States and Iran have initially released signals of a ceasefire intention, and the Strait of Hormuz is reopening to a limited extent. However, restoring crude oil supply to pre-conflict levels still presents difficulties, so it expects that even if Brent crude pulls back in the coming weeks, it may also remain in a relatively high level range (US$80 to US$100) with fluctuations.

If oil prices continue to soar or remain elevated, the bank expects some impact on China’s economic growth. Economic indicators such as China’s manufacturing PMI face downward pressure in the short term, but the overall impact is expected to be mild compared with Europe, the U.S., and other countries in Asia.

The report said that although a long-term runaway surge in international oil prices is not its base-case assumption, it cannot completely rule out the probability of tail risks emerging in the China and Hong Kong stock markets. If Brent crude rises above US$120 per barrel and remains through 3Q, the Hang Seng Index is expected to underperform the A-share index and face a downside adjustment of more than 8% to 10%. The main reasons are that increased stagflation pressure in the United States leads to failed expectations for rate cuts; funds reallocate into the U.S. dollar for safe-haven, putting pressure on the RMB exchange rate; profit of domestic industrial and consumer companies is damaged; and a rise in the risk premium leads to lower valuation multiples for growth stocks.