As Hong Kong stocks powered to their highest level in nearly seven months this week, some analysts expect the downtrodden market to gain a new lease of life as mainland reforms boost sentiment.
The Hang Seng Index climbed 1 percent by midday on Wednesday to 23,414, after touching its highest level since December 10 in early trading. The rally was driven by upbeat Chinese manufacturing data, positive U.S. data and a strong performance in Hong Kong's property sector.
Analysts told CNBC they are bullish on the equity market's prospects for the rest of the year.
"The market we expect to rise the most is Hong Kong," said John Vail, chief global strategist at Nikko Asset Management.
"Though we are not really positive on the Chinese economy we expect a lot of reforms to occur there that are going to excite foreigners and locals about the future of the region," he added.
Chinese authorities unveiled their 60-point reform agenda at their Third Plenum meeting in November, paving the way for sweeping changes in the world's second largest economy. Furthermore, in May China's State Council said it would push ahead with a broad range of capital market reforms, including developing a system for direct bond issuance by local governments, streamlining the approval process for initial public offerings (IPOs) and removing some restrictions on the use of financial derivatives.
"A broad array of reforms, both economic and financial will loosen state control and provide more prospects for profitability in the private sector," said Vail. He also expects additional targeted stimulus measures to a boost the economy.
Vail told CNBC he expects stocks on the Hang Seng, which include exposure to mainland stocks through H-shares index, to rally 7 percent from current levels to 25,084 by year end. The surge would mark a stark turnaround after the index ended the first half down 0.5 percent.
Other economists told CNBC they expect the Hang Seng's fortunes to turn upwards over the coming months but don't expect gains to be as strong as Nikko's Vail has forecast.
"Valuations are quite reasonable. Consensus expectations for Chinese growth are finally beginning to turn up and there is quite a bit of bad news in the price," said Manpreet Gill, senior investment strategist at Standard Chartered Bank.
"Having said that, we think it may be too early to expect spectacular performance for the Hang Seng. In China, we expect policy makers to continue striking the balance between cutting back on excessive growth without slowing growth too much. In Hong Kong, real estate remains a downside risk," he added, referring to the nation's frothy property sector - where prices have more than doubled since 2008.