Assessment of the Impact of Taiwan Strait Geopolitical Tensions on Hong Kong Stocks and Asia-Pacific Markets

At the end of December 2025, the Chinese People’s Liberation Army announced large-scale military exercises around Taiwan, planning to implement air and sea control and conduct live-fire drills on December 30. This military exercise is a direct response to the recent U.S. announcement of selling $11.1 billion worth of weapons to Taiwan, which is the largest U.S. arms sale to Taiwan to date [1].

According to the latest data, the reaction of Asia-Pacific financial markets to this military exercise was

:

• Nikkei 225 Index (Japan)
  : Slightly down 0.24%
• Taiwan Capitalization Weighted Stock Index
  : Up 0.4%, hitting a new all-time high of 28,786 points
• South Korea KOSPI Index
  : Up 1.6%
• Hong Kong Hang Seng Index
  : Down 0.71% to 25,635.24 points [1]

: The above chart shows the Hang Seng Index’s performance in December, today’s performance of Hong Kong tech stocks, a comparison of major Asia-Pacific markets, and the annual performance of Hong Kong stocks. Data shows that despite tensions in the Taiwan Strait, Hong Kong stocks maintained a strong upward trend this year.

[0]:

• Period Open: 25,945.87 points
• Period Close: 25,635.24 points
• Period Decline: -310.63 points (-1.20%)
• Period High: 26,264.13 points
• Period Low: 25,086.54 points
• Daily Volatility: 0.92%

(December 29) [0]:

• Tencent Holdings
  (0700.HK): HK$596.50, down 1.08%
• Alibaba
  (9988.HK): HK$143.30, down 1.85%

Despite escalating geopolitical risks, Hong Kong stocks

. As of December 19 [2]:

• Hang Seng Index YTD gain:
  28.07%
• Hang Seng Tech Index YTD gain:
  22.63%
• Hang Seng China Enterprises Index YTD gain:
  22.10%

These gains

, showing the resilience of the Hong Kong stock market amid geopolitical pressures [2].

From the performance of various Asia-Pacific markets, there are obvious

:

1. Limited Safe-Haven Sentiment
   : No large-scale panic selling occurred in the market, indicating that investors have gradually adapted to the normalization of Taiwan Strait tensions [1]

2. Unexpected Strength in Taiwan Stock Market
   : After the military exercise news was announced, Taiwan’s stock market rose instead of falling, and hit a new all-time high driven by semiconductor leaders such as TSMC. TSMC rose 5.55% in December, reflecting market confidence in the tech supply chain [0]

3. South Korea Market Benefited
   : The KOSPI index rose by 1.6%, partly due to capital flowing from riskier regions to the relatively safer South Korean market [1]

Geopolitical risks significantly boosted demand for safe-haven assets [1]:

• Gold Price
  : Hit a new all-time high, COMEX gold futures reported $4,562 per ounce, with a cumulative YTD gain of 72%, the highest since 1979
• Silver Price
  : Soared more than 10% in a single day, with YTD gains surging to 174%
• Platinum and Palladium Prices
  : Rose 11.84% and 14.04% respectively

As the global semiconductor manufacturing hub, the Taiwan Strait situation has an important impact on the tech supply chain:

• TSMC (TSM) Performance
  : December stock price rose 5.55% to $302.84, with a period high of $313.98 [0]
• Market Reaction
  : Taiwan’s semiconductor-related stocks performed actively; TSMC returned to the historical high of NT$1,525, driving Taiwan’s stock market to new highs [1]

Market analysis points out [3]:

• During the pandemic, the risk of excessive U.S. tech supply chain dependence on Taiwan was fully exposed
• The potential risks of the Taiwan Strait situation further intensified the urgency of the U.S. to promote chip manufacturing reshoring
• The U.S. government追加 $9 billion investment to Intel to promote semiconductor manufacturing localization

Multiple institutions still hold

towards the Hong Kong stock market, but remain vigilant about geopolitical risks [2]:

:

• Compared to the valuation repair-driven market in 2025, the overall valuation of the Hong Kong stock market may rise slightly in 2026
• Improved profit growth may be an important factor driving further market trends
• Under the superposition of liquidity, fundamentals, and sentiment cycles, the rhythm may be high first then low

:

• Recommend adopting the “barbell allocation strategy”
• Use dividend assets as the base position, focus on low PB central state-owned enterprises, insurance, Hong Kong local utilities, etc.

Institutions believe the main risks the Hong Kong stock market may face in 2026 include [2]:

1. Geopolitical Impact
   : Uncertainties such as Taiwan Strait situation and China-US relations
2. Trading Crowding Risk
   : Trading crowding caused by overly consistent consensus
3. Monetary Policy Volatility
   : Sharp fluctuations in China-US monetary policies and liquidity
4. Black Swan Events
   : Unpredictable unexpected events

[4]:

• In the short term, the Hang Seng Index may hover in the range of 25,300 to 26,500 points
• Recommend investors to remain cautious and consider reverse operation strategies
• As an offshore financial market, Hong Kong stocks are greatly affected by global liquidity; need to guard against liquidity risks

Based on the current market environment and geopolitical situation, investors are advised to:

1. Maintain Moderate Defensiveness
   : Increase allocation to safe-haven assets such as gold and silver to hedge against geopolitical risks

2. Focus on Semiconductor Supply Chain
   : Despite tensions in the Taiwan Strait, semiconductor leading enterprises (such as TSMC) still performed strongly, showing strong industry fundamental support

3. Flexible Operation
   : Hong Kong stocks may continue to fluctuate in a range in the short term; it is recommended to wait for a clear direction before operating with the trend

Institutions recommend adopting the

[2]:

• Core Allocation
  : Dividend assets (low PB central state-owned enterprises, insurance, Hong Kong local utilities)
• Satellite Allocation
  : Tech and cyclical sectors; innovative drugs are worth attention

:

• AI infrastructure-related industry chain
• Semiconductor equipment and materials benefiting from supply chain diversification
• Policy-supported industries such as military, electric power, and robotics

Comprehensive analysis shows that the impact of this Taiwan Strait military exercise on Asia-Pacific markets is

:

1. Limited Short-Term Impact
   : Market reaction was relatively moderate, with no large-scale panic selling
2. Structural Differentiation
   : Different markets reacted differently; Taiwan and South Korea markets even strengthened
3. Rising Safe-Haven Demand
   : Prices of safe-haven assets such as gold hit new all-time highs

1. Enhanced Market Resilience
   : The strong annual performance of Hong Kong stocks proves that the market has a certain ability to withstand geopolitical risks
2. Focus on Policy Trends
   : Need to closely monitor whether there will be more military exercises or stronger official statements
3. Profit-Driven Takeover
   : The driving logic of the Hong Kong stock market in 2026 may shift from valuation repair to profit growth
4. Supply Chain Restructuring
   : Geopolitical risks will accelerate the diversification process of the global tech supply chain

: Investors should remain rational, avoid overreaction, focus on corporate fundamentals and profitability, and build a diversified investment portfolio to cope with geopolitical uncertainties. At the same time, closely monitor the development of the Taiwan Strait situation and do a good job in risk management.

---

[0] Gilin API Data - Stock Price Data, Index Data

[1] China Business Times - “Stock Market” Search Results (https://www.ctee.com.tw/search/股市)

[2] 21st Century Business Herald - Institutional Outlook on Hong Kong Stocks in 2026: Profit-Driven Takeover, Grasp the “New Supply” Main Line (https://www.21jingji.com/article/20251219/herald/b898956981b879cd41cbaa83f625ddef.html)

[3] Futu Information - Intel’s Recovery Road Still Long and Arduous, Success Depends on 14A Process (https://news.futunn.com/post/66676857/intel-s-path-to-recovery-remains-long-and-arduous-with)

[4] Futu Information - Daily Summary of Investment Bank/Institutional Views (2025-12-23) (https://news.futunn.com/post/66541516/daily-summary-of-investment-bank-institutional-views-2025-12-23)