The Hong Kong stock market has seen heightened volatility since June. Following a recent seven-day losing streak, the Hang Seng Index has shown signs of a rebound. Amid this deep correction, institutional views on whether the market has reached a "structural bottom" are diverging, with corporate earnings recovery emerging as a key factor influencing the market's pressure in the second half of the year. Regarding specific investment areas, many institutions have highlighted high-dividend yield assets, hard-tech leaders with solid earnings support, and domestic demand recovery as sectors worthy of attention in their second-half investment strategies.
Index Pressure and Sector Divergence Coexist
Market volatility in Hong Kong has intensified since June. After a two-day rebound, the Hang Seng Index closed lower again on June 16, finishing down 1.40% for the day, while the Hang Seng TECH Index fell 2.24%. Since June 3, the Hang Seng Index has been on a downward trend, briefly breaching the key 24,000-point level during trading on June 11 and closing lower for seven consecutive sessions, indicating rising risk aversion among investors.
In the first half of the year, the Hong Kong market has been generally weak, influenced by downward revisions to earnings forecasts, disruptions from Middle East conflicts, and capital outflows toward overseas AI infrastructure momentum trades. Data shows that as of the close on June 16, the Hang Seng Index has declined 4.43% year-to-date, while the Hang Seng TECH Index has plunged 15.54%.
From a sector perspective, performance has been highly divergent year-to-date. Sectors such as internet technology, medical equipment, and media have all fallen more than 20%, while only real estate, industrials, and energy have managed to maintain positive gains.
Institutional analysis suggests the Hong Kong market's weak performance in the first half stems from multiple factors. On one hand, geopolitical conflicts have driven a sharp rise in oil prices, reversing earlier expectations for interest rate cuts. On the other hand, the super-cycle in memory chips coupled with strong earnings from global tech giants has fueled a sustained structural AI rally. The weakness in consumer-related heavyweight stocks has been a significant reason for the Hong Kong market's underperformance.
Analyzing the economic environment for Hong Kong stocks in the first half, one analysis noted the economy displayed a "K-shaped divergence" characteristic. The AI industry chain developed driven by external demand and domestic capital expenditure, boosting related exports and investment and leading to a recovery in corporate credit impulse. However, on the traditional domestic demand side, factors like weak consumer willingness led to a weakening residential credit impulse. Hong Kong's market is heavily weighted with stocks related to the broad consumer and domestic demand sectors, such as internet, e-commerce, electric vehicles, and new consumption. Regarding liquidity, the broad consensus for late 2025 was that both domestic and overseas liquidity would remain or become even more accommodative, with narratives including a weaker US dollar, continued easing by overseas central banks, RMB appreciation attracting more foreign capital, and sustained southbound flows. However, the US dollar has not weakened as expected, expectations for rate hikes from major global central banks have been heating up, and both southbound and overseas capital flows have diminished.
Another institution stated that since February, the Hong Kong market has seen significant risk control-driven selling, influenced by a confluence of negative factors including revisions to Fed rate cut expectations, structural impacts of AI technology on traditional software industries, and geopolitical risk premiums. External disturbances have excessively amplified fundamental pressures.
Attributing the recent trend, one securities firm indicated that the main driver of this round of decline in Hong Kong stocks may have been an increase in short-selling pressure rather than selling pressure from long positions. The recent market correction primarily reflects global liquidity tightness and volatility in overseas assets, but most disruptive factors are expected to revert. Combined with market sentiment being at extreme lows, there is still room to play for an oversold rebound.
Corporate Earnings Recovery Becomes Pivotal
Entering June, numerous brokerages have intensively released their investment strategy reports for the second half of 2026. A core question repeatedly raised is: Has the Hong Kong stock market established a structural bottom?
Institutions holding an optimistic stance believe Hong Kong stocks have gradually completed a phase of probing for a bottom and may witness a double benefit from valuation repair and earnings improvement in the second half.
One securities firm maintains an overall optimistic outlook for the second half, believing negative fundamental factors for Hong Kong stocks have largely been priced in. It highlights three key areas to watch: improvements in China-US relations, the continuation of technological breakthroughs, and the return of the wealth effect. In the tech sector, the token economy is expected to achieve scaled implementation, and the industrialization of humanoid robots is accelerating, which will drive a revaluation across the entire industry chain including computing hardware, large models, and MaaS services.
Another institution holds an even more positive view. It believes Hong Kong stocks have gradually completed a phase of bottom-probing, and the market trend is shifting from the earlier stage of valuation and sentiment repair to a new phase driven jointly by earnings verification and improving risk appetite.
However, not all institutions agree with the judgment that a "structural bottom is gradually forming." Among these, the recovery of corporate profits is seen as the key factor determining whether Hong Kong stocks will face pressure in the second half.
One analysis suggests that while short-term upward momentum for the Hong Kong index stems from declining US Treasury yields, long-term room for gains still relies on earnings recovery. Under the current policy mix and credit cycle environment, it is difficult for overall corporate profits to see substantial improvement. Hong Kong stock earnings growth for 2026 is forecast at only 3% to 4%, weaker than the 6% seen in 2025.
Another securities firm also noted that while overall earnings expectations for Hong Kong stocks show signs of stabilization, structural divergence is evident. Following the impact of the annual reporting season, forward earnings for the Hang Seng TECH Index continue to be revised downward. It remains in a stabilization phase without forming a substantive upward revision, indicating that earnings constraints persist.
Nevertheless, from an industry perspective, high-dividend yield assets, hard-tech leaders with earnings support, and domestic demand recovery are generally viewed favorably.
One securities firm stated that future Hong Kong stock investment strategies should focus on three main lines. The first is high-dividend, yield assets such as energy, materials, non-ferrous metals, banking, and non-bank financials. The second is sectors that faced heavy short-selling pressure during the previous adjustment and now present rebound opportunities. Sectors like food & beverage, consumer services, and discretionary consumer goods experienced significant short-selling pressure during the earlier correction. With currently low valuations and stabilized or upwardly revised earnings expectations, they possess a window for a rebound. The third is the technology sector. Although under short-term pressure, its medium-term logic remains unchanged. It is advisable to focus on sub-sectors with strong earnings certainty, such as semiconductor equipment/materials, AI platform applications, and software.
Regarding the AI hardware chain, one institution believes it currently lacks the conditions for strong absolute returns and outperformance in the short term, with the next key window being the US earnings season in July. Therefore, it suggests adjusting allocation exposure based on floating profit levels and waiting for opportunities to accumulate after risk release and volatility subsides. From a medium-term perspective, it still recommends a balanced allocation to semiconductors, new energy, and machinery where growth momentum is accelerating, as well as to catering and consumer services sectors where valuations are at low levels, earnings expectations have stabilized or been revised upward post-earnings season, and dividend attributes have strengthened.
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