Core Summary
On July 8th, the Hong Kong stock market experienced a sudden turnaround: the Hang Seng Index rose nearly 3% to return above 24,000 points, while the Hang Seng Tech Index soared by almost 5%, with technology stocks such as Alibaba and Xiaomi leading the gains. This marks a sharp contrast from the dismal performance of global markets just a week earlier. The drivers behind this turnaround include policy support (11 financial cooperation measures announced by the central bank), the approaching release of mid-year reports which may indicate bottoming out in earnings, and a shift in market structure towards hard technology. However, whether the Hong Kong stock market has truly hit rock bottom remains uncertain, as we need to wait for two key signals: an improvement in consumer spending and breakthroughs in AI commercialization. In the long run, the Hong Kong market is transitioning from being dominated by consumer internet companies to one led by hard technology firms, and the revaluation of this structural change represents the real opportunity.
Detailed Analysis
1. Why did the Hong Kong stock market suddenly turn around? – Policy support and earnings expectations are the direct catalysts
The immediate reason for the rebound was policy intervention: on July 7th, the central bank introduced 11 measures, such as increasing the quota for mainland investors to buy Hong Kong bonds from 500 billion to 800 billion yuan and providing an additional 300 billion yuan in financial support to the Hong Kong Monetary Authority, effectively injecting liquidity into the market. Additionally, with the mid-year report season approaching, companies’ earnings are expected to stabilize or start to improve, boosting market confidence.
Why was the Hong Kong stock market weak before? Due to three major mismatch issues:
- Weak consumer demand: Many Hong Kong companies rely on mainland consumers for revenue, but consumer spending has been low, with credit data hitting record lows;
- Misalignment with AI trends: Most Hong Kong tech stocks focus on consumer-facing internet services (e-commerce, social media), while the current AI trend is more focused on business-to-business (B2B) applications and hardware, making these companies heavy spenders rather than profit generators;
- Outflow of capital: Foreign investors are cautious due to geopolitical tensions and the potential for interest rate hikes by the Federal Reserve, leading to a decrease in southbound capital flows (money from the mainland into Hong Kong stocks).
2. Has the Hong Kong stock market hit rock bottom? – Low valuations, but not yet a “historical low”
From a valuation perspective, Hong Kong stocks are indeed cheap: the price-earnings ratio of the Hang Seng Tech Index is only 21 times, near its lowest level in 2022, and the dividend yield (the proportion of earnings distributed as dividends) is 3%, which is more attractive than investing in banks. Southbound capital flows have also increased, with net purchases amounting to 14 billion Hong Kong dollars on July 8th.
However, CICC (China International Capital Corporation) believes this is just a temporary low, not a historical bottom:
- The market has not corrected as significantly as it did during the financial crisis (the Hang Seng Index fell by more than 50%);
- Consumer fundamentals have not fully improved;
- Tech stocks are still under pressure: the Hang Seng Tech Index has dropped 33% since its peak in October last year, and while the decline is similar to previous corrections, AI-related businesses have not yet generated substantial profits, so valuations remain unchanged.
3. What two key factors are needed for a real rebound? – Improvement in consumer spending and AI-driven revenue growth
For the Hong Kong stock market to move from being undervalued to potentially profitable, two conditions must be met:
- Improvement in consumer spending: Mainland policies need to encourage consumers to spend more (e.g., through stimulus measures or balance sheet repair), allowing internet companies to revive their traditional businesses and boost earnings;
- AI-driven revenue growth: Internet giants need to convert their AI investments into actual profits—e.g., by using AI to improve advertising efficiency, reduce costs, or charge for AI-based services. Only then will investors reframe these companies as beneficiaries of AI technology, leading to higher valuations.
4. Is the Hong Kong stock market undergoing a transformation? – Hard technology is replacing consumer sectors as the new focus?
The composition of Hong Kong’s core assets is changing: previously, 41% of the “red bottom stocks” (those with lower prices) were in consumer-related sectors (e.g., liquor, retail); now, 42% are in information technology (semiconductors, AI). This change is driven by mainland tech companies listing in Hong Kong and internet giants investing heavily in AI.
This indicates that the market is no longer a haven for consumer stocks but a competitive arena for hard technology firms. For example, companies like Kuaishou have raised 3 billion yuan in AI funding, Meituan has released a large-scale AI model, and Tencent has launched Hy3. These developments are turning AI from a costly investment into a profitable asset. The future value of Hong Kong stocks will depend on the revaluation of hard technology and related industries.
5. Q3 is a critical period: Can earnings and valuations both recover?
Huatai Securities predicts that Hong Kong stock market performance may be better in the second half of the year, but liquidity could remain tight. The third quarter will be crucial to determine whether earnings have truly stabilized and whether policies can continue to support consumption, as well as whether AI commercialization makes progress. Investors are advised to focus on two types of stocks: those in sectors with growing demand (e.g., renewable energy, machinery, semiconductors) and those with low valuations that could see a turnaround (e.g., food and beverage, tourism).
In summary, the Hong Kong stock market is currently undervalued but still needs to prove its potential. In the short term, attention should be paid to policy developments and earnings; in the long term, the structural shift towards hard technology will determine future performance. Ordinary investors should not rush into full positions but wait for signs of improvement in consumer spending and AI-related opportunities before making investment decisions.