To The Moon

On July 22nd, Hong Kong stocks opened lower across the board, with leading internet companies experiencing a collective pullback. TENCENT (TENCENT) shares fell over 4%, while Xiaomi Corp and Kuaishou shares dropped more than 2%. Meituan and Alibaba shares declined over 1%.

The Hong Kong Internet ETF (513770), which holds significant positions in these leading internet firms, saw its on-exchange price fall more than 2%. Throughout the trading session, it consistently traded at a significant premium, indicating active buying interest from investors on the dip. Data from the Shanghai Stock Exchange shows that the ETF has recently attracted concentrated fund inflows, with the latest single-day figures showing a net inflow of 1.59 billion yuan. Over the past 10 days, it has accumulated net inflows totaling 5.42 billion yuan.

Recovery Phase Underway

Since late June, the Hong Kong-listed internet sector has entered a phase of recovery from its lows. Data indicates that from June 29th to July 20th, the CSI Hong Kong Stock Connect Internet Index rose cumulatively by over 20%, reversing its sustained downward trend for the year and significantly outperforming comparable indices like the Hang Seng Index (which rose 11.67%), demonstrating superior recovery momentum.

Drivers of the Rebound

This rebound is supported by several factors. Firstly, signs of an inflection point have emerged in the profitability of leading internet companies. Pessimistic factors such as intense competition in food delivery are showing marginal improvement, and the pressure for downward revisions in earnings for major internet firms is easing. This is creating a positive cycle between AI investments and growth realization. Secondly, a global rebalancing of funds and sustained inflows from southbound capital also provide favorable conditions. Amid increasing volatility in the hardware segment, global capital is seeking more cost-effective opportunities within the broader AI theme.

Current Market Outlook

From the current perspective, some analysts believe the Hong Kong internet sector remains in a window for catch-up gains and is currently at a critical observation point. The core drivers for future Hong Kong market performance are expected to include: the pace of the AI technology narrative in the U.S. stock market; expectations for the Federal Reserve's monetary policy within the year; and domestic catalysts alongside valuations. The market still awaits the implementation of domestic policy stimulus or the emergence of new AI industry narratives to provide incremental momentum.

Focus on Value Reassessment

Attention is on the potential value reassessment of leading Hong Kong internet companies under the AI transformation. The Hong Kong Internet ETF (513770) and its feeder funds passively track the CSI Hong Kong Stock Connect Internet Index. Its portfolio weights are concentrated in tech giants like TENCENT and Alibaba, as well as AI application companies across various sectors. The top six holdings account for nearly 70% of the portfolio, highlighting significant concentration in market leaders. The ETF also offers intraday T+0 trading with good liquidity.

Alternative Strategy

For investors bullish on Hong Kong technology but seeking to reduce volatility, another option is a market-first product. This ETF employs a "tech + dividends" barbell strategy. Its portfolio includes high-growth tech stocks like Alibaba alongside stable, high-dividend-yielding stocks from sectors like banking and insurance, making it an ideal foundational holding for long-term Hong Kong market allocation.

Important Considerations

Investors are reminded that recent market volatility may be significant, and short-term price movements are not indicative of future performance. It is crucial for investors to make rational investment decisions based on their own financial situation and risk tolerance, paying close attention to position sizing and risk management.

The index tracked has specific historical performance and volatility data for recent years. Investors should be aware of fees associated with ETFs and feeder funds, including potential brokerage commissions, subscription/redemption fees, and management fees, the details of which vary by fund share class and holding period.

All investments involve risk. The information presented regarding index constituents is for illustrative purposes only and does not constitute investment advice or indicate actual fund holdings. The risk rating for the mentioned funds is assessed as R4 (medium-high risk), suitable for aggressive (C4) and above investors. Past performance of any index or fund does not guarantee future results.