To The Moon

Hong Kong's benchmark stock index started the trading session with a significant decline, while the technology sector faced even sharper losses.

The Hang Seng Index opened 1.52% lower, and the Hang Seng Tech Index dropped by 2.43%. The semiconductor sector was notably weak, with GIGADEVICE (HKG: 03986) shares falling more than 7%. Other semiconductor companies also saw declines, with several dropping over 6%, over 4%, and over 3%, respectively.

Market Outlook Analysis

Regarding the future direction of the Hong Kong market, one brokerage's research report suggests that Hong Kong stocks have gradually completed a phase of finding a bottom and have established a mid-term base following April's trading activities. The market's performance is transitioning from a previous phase driven by valuation and sentiment recovery to a new stage jointly propelled by earnings verification and improvements in risk appetite. The relative underperformance of Hong Kong stocks over the past month is attributed to global capital prioritizing markets with greater exposure to AI computing power. Hong Kong's market weighting is more concentrated in internet platforms, finance, consumer sectors, high-dividend stocks, and the application side of AI, offering relatively limited direct exposure to the computing power supply chain. The market previously viewed the computing power segment as having the most certain fundamentals, leading to less focus on Hong Kong stocks due to their limited computing power components. If AI-related trading expands from pure computing power to areas like computing power leasing, cloud services, AI applications, cybersecurity, data platforms, and enterprise software, the structural disadvantages of Hong Kong's tech assets could gradually transform into structural advantages.

Another securities firm believes that the Hang Seng Tech Index's current position at a historically low valuation level implies limited room for further significant declines, offering a relatively high margin of safety. From a short-term currency perspective, it is advisable to wait for the US dollar to retreat to a reasonable range. In the medium term, investors should position themselves ahead of "certainty," anticipating a rebound from the index's bottom, with a key revenue realization phase expected around 2026-2027. Long-term, as the proportion of AI-related business revenue continues to increase, the index's valuation framework is expected to shift from an "internet valuation" model to a "tech growth valuation" model.

A further analysis points out that the Hong Kong market faces periodic liquidity headwinds in the second half of the year, with July and September seeing peak periods for share lock-up expiries, though pressure is concentrated in specific sectors. Concurrently, new listings are effectively optimizing the market structure of Hong Kong stocks. Once these headwinds subside, recognition of the market's value proposition is expected to return. Most industries in Hong Kong have low valuation percentiles, and as international risks and liquidity concerns ease, the market may revert to a straightforward assessment based on value for money.