The past month proved exceptionally challenging, with the Hong Kong stock market enduring a significant downturn in June, characterized by a nearly unilateral decline. The Hang Seng Index moved within a range of 22,518 to 26,045.07 points. This performance largely followed the anticipated script from last month, which highlighted the 25,000-point level as a critical defensive line. Holding above it offered a chance to challenge 26,000 points, while a decisive break would risk a move towards the 22,500-point vicinity.
The market's poor showing in June was widely expected, driven by a confluence of negative factors previously discussed, including the so-called "World Cup curse" which indeed materialized. Additionally, fluctuating tensions between the US and Iran introduced uncertainty, while a more hawkish tone from the Federal Reserve disappointed investors. The market's weakness was compounded by a collective decline among major index constituents, with stocks like Alibaba (09988) breaking key support levels. Even typically resilient sectors like banking and insurance failed to hold, leading to the index's slide. In this environment, capital flocked to AI-related themes, such as Zhipu AI (02513)—recently added to the Hang Seng Index—GigaDevice (03986) buoyed by the memory super-cycle, and Kingboard Laminates (01888) amid rising PCB prices. Other notable performers included Jinjing New Energy (01783) with its recycling monopoly theme, Asymchem (06821) in innovative drugs, and strong debuts from Nano IC (09630) and Koto (02272).
Market Outlook for July
Entering July, the overall sentiment is cautiously more optimistic than in June, as much of the anticipated selling pressure appears to have been absorbed. However, the path is not without obstacles, with various uncontrollable risks still warranting caution. Macro-economically, the market is showing some desensitization to certain negatives. The World Cup's impact will conclude on July 20th, with its marginal effect diminishing. US-Iran relations have shown signs of improvement with a memorandum of understanding taking effect, opening a 60-day negotiation window, suggesting a period of reduced direct confrontation.
Nevertheless, several risk points remain. First, the funeral of the late Ayatollah Khamenei on July 9th presents an uncertain event risk. Second, while direct US-Iran conflict may be avoided, Israel's stance remains aggressive, with its defense minister stating readiness for war, potentially dragging the US back into a complex situation. Ultimately, even without open warfare, disputes around the Strait of Hormuz will persist, with Iran holding significant leverage. While the easing of the oil crisis is a positive development, the Russia-Ukraine conflict may emerge as a new flashpoint. Increased Western support for Ukraine could intensify pressure on Russia, potentially escalating attacks on energy infrastructure and disrupting global supply chains for commodities like grain and fertilizers, reigniting inflationary pressures.
The Federal Reserve's meeting at month-end is widely expected to maintain current rates. The new leadership under Kevin Warsh has shifted from "forward guidance" to a more data-dependent, reactive stance, aiming to restore central bank credibility. This approach may increase short-term market volatility and reduce policy certainty. Key signals will depend on June's non-farm payrolls, CPI, PPI data, and the 10-year Treasury yield, with resistance at 4.1% and support at 3.9%. The focus will be on any hints regarding future rate hikes or cuts, which remain difficult to predict.
Fundamentally, June continued the trends from April-May, with resilient external demand and high-end manufacturing but weaker domestic demand and property sectors. The second-quarter GDP tracking estimate is 4.4%, pressured by oil shocks and fiscal pulse, indicating slowing endogenous growth. June's economic data will be a focal point for short-term market moves. Domestically, policy signals from forums like the Lujiazui Financial Forum emphasize cultivating patient capital and guiding long-term funds into the market. The upcoming Politburo meeting in July will be crucial for setting the economic policy tone, likely focusing on implementing existing policies in areas like quasi-fiscal infrastructure and new infrastructure investment. Monetary policy will play a supportive role, with benchmark rates expected to remain steady.
Key Market Events and Risks
July presents the first real stress test. Significant share lock-up expiries are due, with MiniMax facing over HK$90 billion worth of shares becoming tradable on July 9th, and Zhipu AI over HK$20 billion. Other AI chip firms like Biren and TianShu will also see lock-ups expire. Liquidity may face pressure from the expected mid-July listing of ChangXin Memory on the STAR Market, potentially diverting funds from the tech sector. Key dates include the Hang Seng Index and Hang Seng Tech Index futures and options expiry on July 16th, which may amplify daily volatility, the Loan Prime Rate announcement on July 27th, and the Fed's policy decision at month-end.
July Investment Strategy: Navigating the Headwinds
Last month's top ten stock picks significantly outperformed the broader market. While the Hang Seng Index's maximum gain was 3.4%, the average maximum gain for the selected stocks was 13.3%. Specific performers included Guoen Technology (02768) up 46.9%, Lens Technology (06613) up 32.1%, and AAC Technologies (02018) up 10.7%. Given the challenging environment of unilateral decline, a purely defensive stance is difficult. Therefore, the strategy for July is to proactively navigate the headwinds rather than retreat.
The primary market theme for July is technology. Statistics show the electronics industry's profits surged 103.9% year-on-year from January to May, contributing 43.1% to the profit growth of major industrial enterprises. This growth is driven by the expanding prosperity across the AI computing, server, optical module, memory, and semiconductor equipment supply chain. Global investment trends support this view, with key earnings reports and capital expenditure guidance from NVIDIA, Microsoft, and AMD due between July 10-25, and massive investments by Samsung and SK Hynix in advanced packaging for AI memory. Domestic AI investment is also accelerating.
Focus areas include semiconductors (wafer fabrication, various chips, upstream PCBs), robotics (catalyzed by Tesla's Optimus production timeline), and innovative drugs (with clinical trial numbers hitting records and supportive policies). Securities firms may benefit from a revaluation linked to STAR Market and ChiNext business, while the lithium battery sector, at cyclical lows, offers a defensive hedge against high-flying tech stock volatility.
The Selection of Ten Key Stocks
SMIC (00981)
As a global leader in integrated circuit wafer foundry and the foremost player in mainland China, the company benefits from sustained high demand for AI infrastructure and domestic substitution for high-end chips. Its 2025 revenue grew 16.5% to RMB 67.323 billion, with net profit attributable to shareholders up 36.3% to RMB 5.041 billion. For Q2 2026, it guides for revenue growth of 14%-16% sequentially and a gross margin of 20%-22%, reflecting increased optimism.
MONTAGE TECH (06809)
The company's core business benefits from growing AI server demand and the ongoing adoption of DDR5. Q1 2026 revenue rose 19.5% year-on-year to RMB 1.461 billion, with net profit surging 61.3% to RMB 847 million. Its DDR5 RCD chip shipments increased significantly, with newer generations gaining share. The company is also expanding into high-speed interconnect chips like PCIe Retimer and CXL, aligning with AI data transmission needs.
CIG (06166)
Specializing in high-speed optical communication modules, the company is a key beneficiary of global AI computing infrastructure build-out. It is a core supplier to overseas cloud providers and telecom equipment makers. With the industry transitioning to 800G/1.6T and beyond, the company is ramping up R&D and capacity for these high-speed modules, securing orders from overseas compute markets while maintaining its traditional telecom broadband business.
DELTON (01989)
A long-time player in server PCBs, which account for about 80% of its revenue, the company stands to gain from the expanding global demand for computing servers. AI servers require more complex, higher-value PCBs. The company serves 8 of the world's top 10 server manufacturers. With domestic capacity expansion and a new profitable facility in Thailand, it is well-positioned for growth.
NSING TECH (02701)
The company's business spans chip products and lithium battery anode materials. It ranks among the top Chinese players in the global platform-based MCU market. It is capitalizing on trends in AI power supplies and high-speed optical modules, having launched China's first MCU for 800G/1.6T modules and supplying MCUs for AI server power modules.
ESTUN (02715)
As China's leading industrial robot manufacturer by shipments, the company is at an inflection point, with profitability improving significantly in Q1 2026. Its recent Hong Kong listing provides capital for global expansion, strategic M&A, and R&D. The company is shifting from price competition to a quality-driven strategy, integrating AI into applications like welding.
China International Capital Corporation Limited (03908)
CICC reported strong Q1 2026 results, with revenue up 54.26% and net profit up 75.19% year-on-year. Its brokerage, investment banking, and proprietary trading businesses all showed robust growth. It maintains a leading position in cross-border services like QFII and Stock Connect. Potential mergers could enhance its capital base and distribution network.
Techtronic Industries (00669)
The company reported steady growth for 2025, led by its high-margin Milwaukee brand. While tariffs impacted H2 2025 sales, production has been relocated to mitigate this. With a strong start to 2026, core brands are expected to deliver mid-to-high single-digit growth, and margins are anticipated to expand as tariff mitigation measures take full effect.
Liban (09637)
Recently listed as Hong Kong's "first kidney disease innovative drug stock," its core product AP301 for hyperphosphatemia is in Phase III trials. The company has a rich pipeline in nephrology. 2025 revenue grew 368% year-on-year, providing initial commercial validation. Operating in a large and growing global market for kidney disease treatments, it represents a unique investment opportunity in a blue-ocean sector.
Ganfeng Lithium (01772)
The global integrated lithium leader returned to profitability in 2025, with Q1 2026 net profit reaching RMB 1.837 billion, driven by higher sales volumes and prices. It holds substantial global lithium resources across various types, with several key projects ramping up production, supporting its long-term growth trajectory.
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