To The Moon

The global equity markets are in disarray. The A-share market, surprisingly, followed South Korea's lead today. Afternoon concentrated selling pressure in South Korea triggered a wave of indiscriminate selling in A-shares, with U.S. stocks trailing behind. However, the Hong Kong market stands out as a picture of stability, completely unaffected. It opened higher and climbed steadily today, closing up 2.99%. Trading volume also expanded to a high level of 375.8 billion.

Trouble has flared up again in the Middle East. The U.S. Central Command announced on social media on the 7th that the U.S. military has begun "a series of forceful" strikes against Iran in response to Iran's earlier attack on three commercial ships transiting the Strait of Hormuz. Sanctions are also being implemented concurrently. The U.S. Treasury's Office of Foreign Assets Control stated that the U.S. is revoking a general license authorizing the sale of Iranian oil, with related wind-down transactions permitted until 00:00 Eastern Time on July 17. U.S. President Trump said at the NATO summit on the 8th that he believes the U.S.-Iran memorandum of understanding "has ended." International crude oil prices surged rapidly. WTI crude oil jumped 6%, currently quoted at $74.75 per barrel. The usual volatile play, Shandong Molong Petroleum Machinery Co., Ltd. (HKEX: 00568), rose over 12% today. Such stocks typically exhibit sharp, short-lived rallies; they have often risen intraday only to gap down and fall the next day. However, this Middle Eastern conflict has had virtually no impact on the broader market, especially in Hong Kong.

The reason Hong Kong's market has managed to excel this time is primarily structural. Earlier strength in tech stocks did not significantly benefit the index and instead suppressed heavyweight stocks. Now that tech is weakening, heavyweight stocks have become attractively priced after their declines, and with fundamentals improving, capital has flooded in. Today's strong rally also had contributing factors: On July 7, 2026, Pan Gongsheng, Governor of the People's Bank of China, delivered a speech at the "Hong Kong Fixed Income and Currency Summit & Bond Connect Forum," outlining deployments and measures in four core areas: deepening financial market connectivity and supporting the prosperity and development of Hong Kong's capital markets; supporting Hong Kong in developing diversified financial markets; consolidating Hong Kong's status as a hub for offshore Renminbi business; and firmly safeguarding Hong Kong's financial stability and security. The central bank's support directly boosted confidence. Banking stocks led the charge, with China Construction Bank Corporation (HKEX: 00939), Bank of China Limited (HKEX: 03988), Industrial and Commercial Bank of China Limited (HKEX: 01398), and Agricultural Bank of China Limited (HKEX: 01288) all rising over 5%. This is relatively rare, indicating considerable strength.

Catalysts for Domestic Substitution

Domestic substitution continues to gain momentum. The Ministry of Industry and Information Technology issued a risk warning: Anthropic's AI programming tool Claude Code contains serious security backdoor risks. It is recommended that relevant organizations and users immediately conduct comprehensive checks. For development terminals with the affected versions installed, uninstall immediately or upgrade to the latest secure version that has removed the backdoor code. Strengthen control over external connection permissions and traffic monitoring for development tools within core business network segments to prevent unauthorized transmission of sensitive data. Although Claude Code is not widely used in China, the signal is clear: foreign products with security risks cannot be used; domestic software is the reliable choice. Domestic substitution has a solid foundation because the performance gap between some leading open-source/open-weight models and top-tier U.S. frontier models like OpenAI and Anthropic is only about 6 to 9 months, while pricing is 60% to 90% lower, covering the vast majority of routine AI tasks. This is also recognized overseas. According to AI model aggregation platform Open Router, since February 8 this year, the weekly proportion of tokens called from Chinese AI models by U.S. companies has exceeded 30%, reaching as high as 46%. The average for the previous 12 months was 11%. A standout is Zhipu AI (HKEX: 02513). Its newly released large model GLM5.2 saw daily token calls grow 27 times and client numbers increase 80 times in its first week after launch, making it the fastest-growing model on the platform in 2026. On the evening of July 7, JSC International Investment Fund SPC, an international investment fund under Beijing Financial Holdings Group, expressed its long-term optimism about Zhipu's future development and willingness to continue holding the company's shares. Investment institutions WTAsset Management, Optimas Capital Limited, and early shareholder/cornerstone investor Lingyun Guang Technology Co., Ltd. also expressed their intention to hold long-term. With major shareholders locking in their shares, selling pressure eased significantly. Combined with positive catalysts, the stock surged nearly 14% today.

There are only a few strong model players in Hong Kong. MiniMax (HKEX: 00100), Alibaba Group Holding Limited (HKEX: 09988), and Sensetime Group Inc. (HKEX: 00020) all rose over 11%. Kuaishou Technology (HKEX: 01024) and Baidu, Inc. (HKEX: 09888) both gained over 7%. Xiaomi Corporation (HKEX: 01810) has been active recently, undergoing AI strategic adjustments, with model capabilities from Luo Fuli and products delivered through terminals like phones and cars. Additionally, Xiaomi Auto officially announced its new brand "SkyNomad" today, with the stock rising over 9%.

Various regions are also releasing favorable policies. According to the Shenzhen Municipal Government Service and Data Administration, the "2026 Government Affairs AI Application Scenarios List (First Batch)" was recently officially released. This is the first standardized policy in China for the large-scale, batch deployment of government AI agents, marking the official transition of AI Agents from concept to a period of large-scale government procurement. This benefited Kingdee International Software Group Company Limited (HKEX: 00268), which surged nearly 15%. It is reported that Xiaomi's GPU computing power demand from Kingsoft Cloud Holdings Limited (HKEX: 03896) has been upgraded from a ten-thousand-card cluster to an ultra-large-scale computing cluster, with related investment budgets increasing from an initial nearly 40 billion yuan to over 100 billion yuan. Kingsoft Cloud is the sole strategic cloud platform for the Xiaomi-Kingsoft ecosystem. Its intelligent computing cloud service billings revenue grew 90% year-on-year, accounting for over half of public cloud revenue for the first time. The stock rose over 14% today.

Other software application sectors also strengthened in sync. Stocks like Mingyuan Cloud International Holdings Limited (HKEX: 00909), Meitu Inc. (HKEX: 01357), and Maifushi (HKEX: 02556), which were at lower levels, all rose over 7%.

The Earnings Theme

The earnings theme is also strong. Inspur Electronic Information Industry Co., Ltd. (SZSE: 000977) released its semi-annual performance forecast last night, expecting first-half net profit attributable to shareholders of 2.6 billion to 3.1 billion yuan, a year-on-year increase of 226% to 288%. After deducting non-recurring gains and losses, net profit is expected to be 2.055 billion to 2.555 billion yuan, up 206% to 280% year-on-year. It hit the daily limit up directly today, raising earnings expectations for similar stocks. For example, Lenovo Group Limited (HKEX: 00992), with potential AI server orders reaching $21 billion, rose nearly 7%. Hui Ju Technology Co., Ltd. (HKEX: 01729) issued a profit alert, expecting interim net profit to increase approximately 150% to 170% year-on-year, rising nearly 8%. Shanghai Fudan Microelectronics Group Company Limited (HKEX: 01385) issued a profit alert, expecting first-half net profit attributable to shareholders to increase approximately 313.19% to 416.49% year-on-year. The company recognized fair value change gains of approximately 470 million yuan from its strategically placed shares in Shenghe Jingwei Semiconductor Co., Ltd., boosting net profit, and the stock rose over 6%.

Sector Spotlight

A July 7 report indicates that a recent survey shows Chinese companies are gradually abandoning advanced accelerators developed by U.S. AI giant Nvidia in favor of domestic products. DeepSeek has initiated self-developed inference ASIC chips, and Zhipu is simultaneously developing its own computing power chips. These two leading large model manufacturers venturing into chip-making is catalyzing the domestic semiconductor industry chain again. Main beneficiaries include: 1. Wafer foundries: Hua Hong Grace Semiconductor Manufacturing Limited (HKEX: 01347) and SMIC (HKEX: 00981); 2. AI accelerators: BIREN TECH (HKEX: 06082) and ILUVATAR COREX (HKEX: 09903).

Stock Analysis

TCL ELECTRONICS (HKEX: 01070): Huizhou Expansion and Sony Joint Venture Catalyze; Shipments Double

The company recently signed a capital increase and capacity expansion agreement with the Zhongkai High-tech Industrial Development Zone in Huizhou, adding 10 million units of annual smart TV production capacity. Upon completion, the annual capacity of the Zhongkai base will exceed 50 million units. The company's revenue for the first quarter of 2026 was 29.225 billion Hong Kong dollars, a year-on-year increase of 15.3%. Adjusted net profit attributable to shareholders was 384 million Hong Kong dollars, up 140.0% year-on-year, with gross margin improving by 2.5 percentage points to 17.0%.

Analysis: The expansion of the Huizhou base makes the company the world's largest TV production base. Simultaneously, the registered capital of TCL王牌电器 increased by approximately 80% to 3.1 billion Hong Kong dollars. The company holds nearly a 70% global market share in LCD panels, with self-researched and self-produced MiniLED backlight and quantum dot materials, and an upstream panel self-supply rate exceeding 70%. In Q1 2026, the company's large-size display domestic revenue was 4.60 billion Hong Kong dollars, up 3.9% year-on-year, while overseas revenue was 12.11 billion Hong Kong dollars, up 23.2% year-on-year. This included North America +32.2%, Europe +29.9%, and Asia Pacific/Latin America/Middle East & Africa +16.4%, showing accelerated development across multiple global regions. From a product structure perspective, the company's MiniLED shipments doubled year-on-year in Q1 2026. Domestic shipment share increased by 1.8 percentage points to 19.4%, and overseas share increased by 10 percentage points to 15.7%. Driven by product structure upgrades and larger screen sizes, the gross margin for large-size domestic products in Q1 2026 was 20.1%, up 1.9 percentage points; overseas gross margin was 16.6%, up 3.7 percentage points. Innovative business revenue was 8.96 billion, up 8.1% year-on-year, with photovoltaic revenue up 13% and new installed capacity exceeding 1.3GW. Benefiting from business scale expansion, improved operational quality, and gradual effectiveness of overseas market expansion, the gross margin of the photovoltaic business improved year-on-year to 9.4%. Internet business revenue in Q1 2026 grew 13.2% to 740 million Hong Kong dollars, with overall gross margin improving by 10.6 percentage points to 65.0%. The proportion of high-end overseas orders increased, with the shipment share of high-end models rising from 10% in 2022 to 32.6% in Q1 2026, and the scale of high-end shipments doubling compared to two years ago. On March 31, 2026, the company and Sony signed a legally binding final agreement for strategic cooperation in the home entertainment field. In the future, they will jointly build a new ecosystem for the global home entertainment industry through a joint venture, further deepening the group's strategic layout in the global mid-to-high-end market. Simultaneously, leveraging TCL's supply chain advantages, the joint venture is expected to achieve rapid cost reduction and profit improvement, injecting new performance growth momentum into TCL Electronics. As a leading global color TV industry player, TCL Electronics continues to enhance its mid-to-high-end and global operational capabilities, driving steady expansion of its TV business share. Beyond its main business, it is solidifying growth drivers like photovoltaics, full-category marketing, and internet business. The home entertainment joint venture agreement with Sony has been finalized, continuously validating the logic of going global with a high-end focus.