Yesterday's technology-driven rally in the A-share market quickly dissipated today. Overall market sentiment has turned cautious once again. The Hong Kong market is also facing some sudden developments, with the Hang Seng Index falling 0.95%. Unexpectedly, high-level infighting has erupted in Ukraine. President Zelensky replaced Defense Minister Fedorov and Commander-in-Chief of the Armed Forces Syrskyi within a week, and Prime Minister Shmyhal was "persuaded to resign," leading to the subsequent dissolution of the cabinet. The underlying cause is the difficult-to-reconcile conflict between reformists and conservatives, primarily revolving around interests and corruption. The direct consequence may shake the confidence of the US and the West in providing aid. Russia is seizing the opportunity to strike amidst the chaos. This undoubtedly puts pressure on the United States, which is already dealing with a headache in Iran. If Ukraine falters, the consequences could be severe.
Even worse, the Bab-el-Mandeb Strait is also in crisis: Yemen's Houthi forces announced on the 20th a "maritime embargo" on Saudi Arabia, effective immediately. The EU's military operation in the Red Sea, EUNAVFOR ASPIDES, has advised commercial vessels associated with Israeli, US, or Saudi interests to avoid transiting the Red Sea and the Gulf of Aden until the threat level decreases. According to US Energy Information Administration data, the Bab-el-Mandeb Strait carries about 12% of global trade and a quarter of container shipping. With both the Strait of Hormuz and the Bab-el-Mandeb Strait facing issues, global energy supplies are once again being strangled. WTI crude oil futures surged 4.08%, and Brent crude futures rose 4.02% to $94.673 per barrel. Shandong Molong Petroleum Machinery Co., Ltd. (HKG: 00568) rose over 7% again. If tensions persist, coal prices are expected to continue rising. Yancoal Australia Ltd (HKG: 03668) gained over 6%. Analysis indicates that if the Bab-el-Mandeb Strait is simultaneously blocked, alternative routes (e.g., from Saudi Arabia's Yanbu Port to Ningbo-Zhoushan Port) via the Cape of Good Hope would increase voyage distance by 129.8%, potentially generating additional demand for about 148 VLCCs (based on an estimated cargo volume of 5 million barrels per day). Pacific Basin Shipping Limited (HKG: 02343) and COSCO Shipping Energy Transportation Co., Ltd. (HKG: 01138) rose over 4%.
Turning to gold, spot gold strongly broke through the key $4,130 per ounce level, with COMEX New York gold futures also rising, firmly holding above $4,130, indicating a significant short-term bullish trend. The outlook for gold is no longer dependent on the Federal Reserve's stance; the most crucial factor now is asset risk aversion. The current situation is too chaotic. Previously, assets were anchored to AI, but this logic is now undergoing a major shift: capital is retreating from AI. Therefore, gold has become the best vehicle for safe-haven demand. Additionally, since the beginning of the year, the Chinese central bank's monthly gold purchases have continuously climbed from 30,000 ounces to 480,000 ounces, with the buying pace returning to the levels seen in 2022-2023. Yesterday, it was mentioned that the next catalyst for gold would be ETF movements, and it came immediately. The largest gold ETF in Asia by size, the Huaan Gold ETF (SSE: 518880), rose 1.18%, while the Huaan Gold Stock ETF (SZSE: 159321) surged 6.27%, leading all ETFs in the market. Today, Chifeng Jilong Gold Mining Co., Ltd. (HKG: 06693) and Lingbao Gold Group Ltd. (HKG: 03330) saw the strongest gains, rising over 15%. China Gold International Resources Corp. Ltd. (HKG: 02099) and Zijin Mining Group Co., Ltd. (HKG: 02259), mentioned yesterday, also rose over 9%.
The risk-off sentiment has also spread from gold to other metals. Copper is highly correlated with gold. Another catalyst is the news on US copper tariffs, described as "the most critical node worth watching recently." Last year, the US Department of Commerce recommended a phased implementation of refined copper import tariffs, starting with a 15% tariff from January 2027, but the plan was originally scheduled for reassessment before the end of June this year. If Trump ultimately adopts this plan, the US will likely face a new wave of copper imports. Other stimulative factors exist. According to a July 21 report, the pace of domestic copper inventory drawdown has exceeded expectations, dropping from a high of 577,200 tons in early March to 165,000 tons on July 10, a decline of 71%. The logic of tight supply and demand is gradually materializing. On the supply side, a winter storm swept through central Chile, affecting operations at some large copper mines. Globally, long-term underinvestment in capital expenditure, coupled with a continuous decline in copper ore grades, has led to natural depletion in mature mines. Simultaneously, the restart of large mines has been generally delayed, resulting in extremely low supply elasticity for copper concentrate. Short-term geopolitical conflicts have further disrupted sulfur and sulfuric acid transportation in the Middle East, posing a potential impact on global hydrometallurgical copper capacity. Related stocks like MMG Limited (HKG: 01208) rose over 9%, while China Nonferrous Mining Corporation Limited (HKG: 01258) and Zijin Mining Group Co., Ltd. (HKG: 02899) gained over 6%.
For other metals, such as Jiaxin International Resources Holdings Ltd (HKG: 03858) mentioned yesterday regarding share buybacks: UBS expects the Chinese tungsten market to remain in a supply deficit, with tungsten concentrate prices recovering to 500,000 and 550,000 yuan per ton in 2026 and 2027, respectively, 24% and 36% higher than the current spot price. The bank believes the current tungsten price of around 400,000 yuan per ton is close to the bottom of a new cycle, with limited downside. The stock rose over 8% today.
The weakness in the technology sector stems from concerns over major companies' capital expenditure. Alphabet Inc. (GOOG.US) will be the first hyperscale cloud provider to report earnings. In April this year, Alphabet raised its 2026 AI guidance and hinted at a significant increase in AI capital expenditure for 2027. However, Alphabet may be forced to lower its AI capex guidance due to multiple constraints, the most important being financing constraints. Moreover, Alphabet's free cash flow has been declining, potentially even 60% lower than reported values. Consequently, most technology stocks weakened. The two leading stocks, KB LAMINATES (HKG: 01888) and Yangtze Optical Fibre and Cable Joint Stock Limited Company (HKG: 06869), fell over 15% and 10%, respectively.
Unexpectedly, Tencent Holdings Limited (HKG: 00700) also failed to hold up. Its cloud executive stated that to minimize inference costs, the company would deploy domestic computing power on a large scale. The market is concerned that its high spending may drag on performance. Additionally, a Bernstein research report reportedly tracked a decline in domestic game revenue in Q2. On July 21, US President Trump announced a new tariff arrangement for generic drugs via social media: starting August 1, 2026, generic drugs imported into the US will continue to enjoy a two-year zero-tariff transition period; after the transition, a 100% tariff will be imposed for one year, followed by a further increase to 200%. The core policy goal is to promote the reshoring of generic drug manufacturing capacity to the US. Companies that fail to establish production lines in the US on schedule will face high tariff penalties. The coming days will be challenging for generic drug companies, while the value of innovative drugs is once again highlighted. Genscript Biotech Corporation (HKG: 01548) and Akeso, Inc. (HKG: 09926) rose over 6%.
Since June, the paper industry has continued its combination of "production halts + price hikes." Nine Dragons Paper (Holdings) Limited (HKG: 02689) raised prices by 50-100 yuan per ton across all its ten major bases, with 21 companies following suit with increases of 50-200 yuan per ton. The scope and magnitude of the price hikes are rare for the off-season in recent years. The waste paper sector (containerboard and corrugating medium paper) has led the recovery, benefiting major paper companies significantly. Lee & Man Paper Manufacturing Limited (HKG: 02314): It is expected to record a profit attributable to the company of approximately HK$1.33 billion to HK$1.39 billion for the six months ending June 30, 2026, representing an increase of 64% to 71% compared to HK$811 million in the same period last year. The stock rose over 4% today, while Nine Dragons Paper (Holdings) Limited (HKG: 02689) advanced steadily.
Sector Spotlight
On July 22, LONGi Green Energy Technology Co., Ltd. (SSE: 601012) formally signed a significant cooperation agreement with global energy company RWE to deploy a large-scale centralized photovoltaic and battery energy storage system (BESS) project in Sicily, Italy. The project will be configured with approximately 300MWh of storage capacity and will be connected to the local grid upon completion. This project will adopt LONGi's flagship centralized energy storage solution, LONGiBank 2.0 6.25MWh. The product features a high-safety, liquid-cooled integrated lithium iron phosphate (LFP) system design, with an energy density of up to 146 Wh/L, achieving a single-container capacity of 6251 kWh within an optimized 20-foot standard container. This news undoubtedly boosts confidence in the photovoltaic industry. Currently, photovoltaics have fallen to a bottom, and any positive news could stimulate a rebound. Key Hong Kong-listed stocks to watch include Xinyi Solar Holdings Limited (HKG: 00968), Flat Glass Group Co., Ltd. (HKG: 06865), and GCL Technology Holdings Limited (HKG: 03800).
Individual Stock Analysis
TCL Electronics Holdings Limited (HKG: 01070): Acquisition Progress Exceeds Expectations, MiniLED Shipments Double
Recently, the company plans to acquire a 51% stake in TCL Air Conditioner (Zhongshan) Co., Ltd. for HK$5.61 billion, with the transaction expected to close in the fourth quarter of 2026. The company expects first-half revenue to be between HK$60.3 billion and HK$65.7 billion, representing year-on-year growth of 10% to 20%. Adjusted net profit attributable to shareholders for the first half is projected to be between HK$1.48 billion and HK$1.65 billion, a year-on-year increase of 40% to 56%.
Commentary: This acquisition will propel the company's comprehensive transformation into a full-category smart home platform. It will enable the company to enter the air conditioning business, which has an annual production and sales volume exceeding 22 million units and ranks fourth globally in shipments. The profitability of TCL Electronics' small and medium-sized display business has improved, driving steady enhancement in overall profits. The expansion of the Huizhou plant has made it the world's largest television production base. Simultaneously, the registered capital of TCL King Electrical Appliances increased by approximately 80% to HK$3.1 billion, adding an annual production capacity of 10 million smart TVs. Upon reaching full capacity, the annual output of the Zhongkai base will exceed 50 million units. The company holds nearly a 70% global market share in LCD panels. It develops and produces MiniLED backlight and quantum dot materials in-house, with an upstream panel self-supply rate exceeding 70%. In Q1 2026, the company's large-size display domestic revenue was HK$4.60 billion, up 3.9% year-on-year, while overseas revenue reached HK$12.11 billion, a 23.2% increase. Revenue growth was strong across regions: North America +32.2%, Europe +29.9%, and Asia Pacific/Latin America/Middle East & Africa +16.4%, indicating accelerated development in multiple global markets. From a product structure perspective, the company's MiniLED shipments doubled in Q1 2026. The domestic shipment share increased by 1.8 percentage points to 19.4%, while the overseas share rose by 10 percentage points to 15.7%. Driven by product structure upgrades and the trend towards larger screen sizes, the gross margin for the company's large-size domestic business in Q1 2026 was 20.1%, up 1.9 percentage points; the overseas gross margin was 16.6%, up 3.7 percentage points. Revenue from innovative businesses reached HK$8.96 billion, up 8.1% year-on-year, with photovoltaic revenue increasing 13% and new installed capacity exceeding 1.3 GW. Benefiting from business scale expansion, improved operational quality, and the gradual effectiveness of overseas market expansion, the gross margin of the photovoltaic business increased year-on-year to 9.4%. Internet business revenue grew 13.2% year-on-year to HK$740 million in Q1 2026, with the overall gross margin improving by 10.6 percentage points to 65.0%. The proportion of high-end overseas orders has increased. The shipment share of high-end models rose from 10% in 2022 to 32.6% in Q1 2026, with the shipment volume of high-end models doubling compared to two years ago. As a leading global color TV industry player, TCL Electronics continuously refines its capabilities in mid-to-high-end products and global operations, driving steady market share expansion in the TV business. Simultaneously, it strengthens growth drivers beyond its main business, such as photovoltaics, full-category marketing, and internet services. The strategic cooperation with Sony is a significant highlight for future development. In March, TCL and Sony established a joint venture. It is expected that after commencing operations in 2027, their combined market share may surpass the current leader to become number one globally. In the second half of 2026, the company's performance is expected to continue its rapid growth, supported by product structure upgrades. Furthermore, with the establishment of the joint venture with Sony, future profit margins may further widen.
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