Can Tencent and Alibaba Lead a Hang Seng Tech Rebound?

Can Tencent and Alibaba Lead a Hang Seng Tech Rebound?

Recently, after a deep correction, the Hong Kong stock market has shown signs of stabilization. As the two largest tech giants by weight in the Hang Seng Index, Tencent Holdings and Alibaba Group, their earnings reports and stock price movements have become the market's focus. There is widespread attention on whether the Hong Kong tech sector can become the core force driving a Hang Seng rebound amid marginal improvements in the liquidity environment.

Tencent and Alibaba Earnings: Shared Resilience Amid Performance Divergence

According to recently released quarterly reports, both Tencent and Alibaba have demonstrated resilience in their respective business segments. Tencent has maintained steady growth in core areas such as gaming, advertising, and enterprise services, with the continued ramp-up of video account ad revenue providing a new growth narrative for the market. Reports indicate that Tencent's net profit margin has improved due to cost optimization measures, showcasing operational efficiency under macro pressure. For Alibaba, its core e-commerce business has retained user stickiness amid fierce market competition, while narrowing losses in its cloud computing business have boosted investor confidence. Despite differences in revenue growth rates, both companies have signaled management's confidence in long-term value through shareholder return initiatives such as buybacks and dividends.

Stock Performance: From Valuation Trough to Capital Attention

From a stock price perspective, shares of Tencent and Alibaba experienced a decline followed by a rebound in 2024. Year-to-date, the Hong Kong tech sector has faced overall pressure due to geopolitical risks and the pace of domestic economic recovery, with the Hang Seng Tech Index once falling to historical valuation lows. However, as earnings season unfolded, both Tencent and Alibaba saw varying degrees of rebound after their results were announced. Market analysts believe that the current P/E ratios of both companies are at low percentiles over the past five years, making them increasingly attractive compared to U.S. tech giants. In particular, Alibaba's completion of its dual primary listing conversion has further catalyzed capital inflows due to improved liquidity expectations.

Liquidity Changes: Fed Rate Cut Expectations and Southbound Capital Converge

The performance of the Hong Kong stock market is highly dependent on the global liquidity environment. Recently, as U.S. inflation data shows signs of easing, market expectations for the Federal Reserve to begin rate cuts in the second half of 2024 have risen. According to the latest Fed statement, policymakers have started discussing the timing of rate cuts, providing a macro foundation for valuation recovery in Hong Kong tech stocks. Meanwhile, southbound capital continues to flow net into the Hong Kong stock market, with increased allocation to leading stocks like Tencent and Alibaba. Data from the Hong Kong Exchange shows that southbound capital's net buying of the Hong Kong tech sector has significantly increased over the past month, indicating a preference among mainland investors for core Hong Kong assets.

Tech Sector Outlook: Rebound or Reversal?

Despite strong short-term rebound momentum, whether the Hong Kong tech sector can lead a trend-driven rally in the Hang Seng Index still faces multiple uncertainties. On one hand, global geopolitical risks (such as U.S.-China tech competition) remain a long-term factor suppressing sector valuations; on the other hand, the strength and pace of domestic economic recovery will directly determine growth potential in core businesses like consumption and advertising. However, from a technical and capital flow perspective, the Hang Seng Tech Index has formed a bottom structure near key support levels. If subsequent earnings reports continue to validate earnings improvement trends, the sector could transition from a rebound to a reversal.

Overall, Tencent and Alibaba, as the "dual engines" of the Hong Kong tech sector, have a significant driving effect on the Hang Seng Index through their earnings and stock performance. Driven by both liquidity improvement and valuation recovery, Hong Kong tech stocks have the foundation for a staged rebound. However, investors should closely monitor macro data changes and corporate earnings realization to assess the sustainability of the rebound.