Cusson Leung, KGI Asia’s chief investment officer, said on Tuesday that “a growing wave” of overseas funds was expected to flow into Hong Kong’s stock market in the coming months as investors sought to diversify their portfolios amid US dollar weakness. He added that the city’s stocks had lower price-to-earnings ratios than their counterparts in other major global markets, making them more appealing to bargain-hunting investors.

KGI Asia predicted that the Hang Seng Index would climb to 25,500 points by the end of the year, with stocks in the benchmark priced at around 11 times earnings. The index could gain 6.3 per cent in the second half and record an increase of 27.5 per cent for the full year, the firm said.

Leung said the Hang Seng Index’s gains would be driven by strong policy support from Beijing, a rebound in consumption on the mainland, advances in manufacturing automation and foreign capital inflows.