The Hong Kong stock market reversed its earlier five-day fall as sentiment for the Chinese mainland share market lifted to support the city’s equity market.

The city’s equity market benchmark index, the Hang Seng Index, soared 2.1 percent to close at 23,959 points in Friday’s trading, with a market turnover of HK$290.6 billion ($37.3 billion). The Hang Seng China Enterprises Index — a barometer of mainland companies — gained 2.7 percent to finish at 8,877 points. The city’s technology stock gauge, the Hang Seng TECH Index, rose 2.3 percent to close at 5,880 points.

Positive market sentiment for the mainland’s A-share market was boosted by the People's Bank of China's reaffirmation of its intention to cut the reserve requirement ratio and interest rates when appropriate. The policy of the Inner Mongolia autonomous region government to encourage childbirth by providing higher-than-expected financial subsidies also elevated market sentiment, as domestic consumption is expected to be boosted by the new policy.

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Despite the rally, the Hang Seng Index was not able to surpass 24,000 points on Friday and has lost 1.1 percent this week.

HSBC Global Private Banking said it views the Chinese mainland’s policy pivot toward technological innovation, consumption revival and private sector development — which was endorsed by the National People’s Congress at its closing session earlier this week — as a significant and positive driver supporting the re-rating of the mainland’s equity market.

“We see further re-rating potential in mainland equities, led by internet and technology stocks, due to the market’s distinctive AI re-rating driver, improving earnings expectations, compelling the risk-reward profile underpinned by conservative foreign investor positioning and significant valuation discount,” said Fan Cheuk-wan, Asia chief investment officer at HSBC’s Global Private Banking and Wealth.

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Moreover, even after the recent rally in the Hong Kong stock market, market valuation is still relatively cheap, she said.  

“The Hang Seng Index is trading at a multiple of 11 at a 12-month forward price-to-earnings ratio, which represents a 47 percent discount to the S&P 500 Index. The S&P 500 Index is currently trading at a multiple of 20.9 forward P/E ratio,” Fan added.

“We believe the equity market (A-share in particular) is likely to continue to be supported by ample liquidity and regulatory support for the capital markets,” added James Wang, head of China Strategy at UBS Investment Bank Research.

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Wang believes that consumer, especially auto, smartphones and white goods could benefit from the continuation of the trade-in subsidy program while leisure-related names could also benefit given a greater emphasis on supporting services consumption. Supportive tone towards AI development may continue to provide positive backdrop for the data centers and AI-related names.