Hong Kong stocks opened higher on August 10, with major internet companies mostly strengthening. As of the time of writing, Alibaba-W, Meituan-W, and Kuaishou-W rose over 1%, while Tencent Holdings and Xiaomi Group-W followed suit. The Hong Kong Internet ETF (513770), which is heavily weighted toward leading internet companies, climbed higher in early trading, with its intraday price now up over 1%.
On the news front, the US non-farm payrolls for July unexpectedly decreased by 23,000, falling far short of market expectations. The probability of a September rate hold has risen to 65%, while the chance of a 25-basis-point hike is only 35%. This is beneficial for Hong Kong stocks, particularly for the liquidity of the heavyweight tech sector.
Galaxy Securities stated that as the mid-year reporting season enters its peak period, the pricing logic of Hong Kong stocks is shifting from sentiment repair and capital rebalancing to fundamental validation and structural rebalancing. The global AI pricing logic is also showing a trend of moving from hardware infrastructure to application monetization, with expectations for the commercialization of domestic large models heating up. The firm recommends focusing on AI applications, leading large model companies, and internet platforms with traffic portals.
Western Securities also noted that the global AI narrative is shifting its center from North America to China and from hardware to applications. Hong Kong-listed internet platforms, which control traffic entry points, deserve significant attention. Additionally, from the perspectives of valuation levels, index positions, and fund attractiveness, Hong Kong internet stocks may represent a global value trap, potentially absorbing funds flowing out of AI hardware. The firm holds a strategic bullish view on the Hong Kong internet sector.
CITIC Securities believes that the exhaustion of negative factors could support the continuation of Hong Kong stock market gains. Over the past month, the Hang Seng Composite Index has experienced a reversal in earnings expectations, with mid-report surprises and positive guidance driving full-year earnings upward. Meanwhile, the Hang Seng Tech Index has seen a relatively lagging recovery in expectations, constrained by profit divergence in passenger vehicles and the pressure on short-term profit margins from capital expenditure expansion at leading internet platforms. Since July, the Hong Kong internet sector has undergone a strong recovery, with the CSI Hong Kong Stock Connect Internet Index, tracked by the Hong Kong Internet ETF (513770), rising 18.81% in a single month, leading global major tech indices.
Feng Chenchen, fund manager of the Hong Kong Internet ETF (513770), pointed out that the rebound may be the result of a combination of capital inflows, market style diversification, and fundamental stabilization. First, from a capital flow perspective, southbound capital inflows in July reached approximately HK$62.9 billion, a significant increase of about 132% month-on-month from June. The internet sector saw sustained southbound capital inflows starting June 29, reversing five months of outflows and providing crucial support to the market. Second, from a market style perspective, US stock funds, driven by momentum trading and deleveraging of margin positions, are flowing from the crowded AI "winning sector" to the "Magnificent Seven," defensive sectors, and other under-allocated market areas. This style diffusion trade has also spread to other global economies. Furthermore, on the fundamental side, pessimistic expectations for cloud/AI application vendors have reversed, and competition in food delivery has eased, leading to signs of improvement in the performance of heavyweight internet leaders.
The US earnings season has changed the AI narrative. Earnings reports from Microsoft and Amazon released in late July showed investors an AI investment-to-return cycle for cloud vendors, where capital expenditure is being converted into measurable revenue and profit returns—essentially proving that it can be recouped, as verified by earnings. Domestically, driven by sustained AI demand, cloud vendors are expected to maintain a quarter-on-quarter acceleration in revenue growth. Alibaba Cloud's profit margins are rising, entering an upward earnings cycle, and Tencent is back on the AI large model table with the launch of its Hy3.0 model, shifting the "AI loser" narrative. Meanwhile, Meituan and Alibaba have significantly reduced subsidies quarter by quarter, with losses in the instant retail business expected to narrow, providing a clear upward trend in short-term profit margins, and easing competition may lead to upward earnings revisions.
Looking ahead, Feng Chenchen believes that the global AI industry is increasingly focused on commercialization, becoming more sensitive to the sustainability of capital expenditure ROI, technological competitiveness, AI revenue growth, and operating profit margins. The significant breakthrough in coding capabilities of the domestic Zhipu GLM-5.2 model marks the beginning of the second half of AI commercialization in China. From June to July, multiple important models were intensively released by Chinese AI companies, with Chinese developers approaching, and in some areas even surpassing, US companies long regarded as global AI frontier leaders. The outcome of open-sourcing models and price cuts is the democratization of models, with the industry's profit margin shifting to cloud vendors that have customers and scale. Entering the "profit realization" phase, AI value distribution is moving toward cloud vendors that "control computing power and revenue entry points." Short-term theme investments driven by improved risk appetite may continue.
It is worth noting that as of the end of the second quarter, public fund holdings of Hong Kong stocks have fallen to levels seen before the "924" policy shift in 2024, with internet sector positions retreating to historical lows. The potential rebalancing from extreme under-allocation of Hong Kong stocks may also provide some tailwind support. Attention is turning to the revaluation of Hong Kong internet leaders amid the AI transformation.
The Hong Kong Internet ETF (513770) and its feeder funds (Class A: 017125; Class C: 017126) passively track the CSI Hong Kong Stock Connect Internet Index. Its top ten heavyweight stocks include tech giants like Alibaba-W and Tencent Holdings, along with various AI application companies, providing significant advantages. It offers intraday T+0 trading with good liquidity. For those bullish on Hong Kong tech but seeking to reduce volatility, the first market-wide Hong Kong Large Cap 30 ETF (520560) may also be considered. It features a "tech + dividend" barbell strategy, with heavy holdings including high-elasticity tech stocks like Alibaba as well as stable, high-dividend stocks like banks and insurance, making it an ideal long-term allocation tool for the Hong Kong market.
Reminder: Recent market volatility may be significant, and short-term gains or losses do not indicate future performance. Investors are advised to invest rationally based on their own capital situation and risk tolerance, paying close attention to position and risk management.
Data sources: Shanghai and Shenzhen stock exchanges, etc.
ETF fee description: When investors apply for or redeem fund shares, the subscription and redemption agency may charge a commission of up to 0.5%, which includes fees charged by the stock exchange, registration institutions, etc.
Feeder fund fee description: For the Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class A), the subscription rate (front-end) is RMB 1,000 per transaction for amounts over RMB 2 million, 0.6% for amounts between RMB 1 million (inclusive) and RMB 2 million, and 1% for amounts under RMB 1 million. The redemption rate is 1.5% for holding periods under 7 days and 0% for holding periods of 7 days (inclusive) or more. No sales service fee is charged. For the Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class C), no subscription fee is charged, the redemption rate is 1.5% for holding periods under 7 days and 0% for holding periods of 7 days (inclusive) or more, and the sales service fee is 0.3%.
Risk warning: The Hong Kong Internet ETF (513770) and its feeder funds passively track the CSI Hong Kong Stock Connect Internet Index. The index base date is December 30, 2016, and it was published on January 11, 2021. The annual returns of the index over the past five complete years are: 2025, 27.02%; 2024, 23.04%; 2023, -24.74%; 2022, -23.01%; 2021, -36.61%. The volatilities over the past five complete years are: 2025, 33.60%; 2024, 43.49%; 2023, 32.09%; 2022, 49.01%; 2021, 38.72%. The composition of index constituents is adjusted periodically according to the index's compilation rules. The back-tested historical performance does not indicate future performance of the index. The index constituents mentioned in the article are for display purposes only, and descriptions of individual stocks do not constitute any form of investment advice, nor do they represent the holdings or trading actions of any fund managed by the fund manager. The fund manager assesses the risk level of this fund as R4-Medium to High Risk, suitable for aggressive (C4) and above investors. Any information appearing in this article (including but not limited to stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors must be responsible for their own investment decisions. Additionally, any views, analyses, or forecasts in this article do not constitute investment advice to readers, and the author is not responsible for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Past performance is not indicative of future results. Fund investment carries risks, and investors must be cautious.
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