Hang Seng Index Enters Technical Bull Market: Tencent and Alibaba Lead Hong Kong Stocks Rally – Drivers and Outlook

Hang Seng Enters Technical Bull Market: The Logic Behind the Tencent and Alibaba-Led Rally and Future Outlook

Recently, the Hang Seng Index in Hong Kong has rebounded over 20% from its low point after months of volatile consolidation, crossing the threshold of what the market commonly defines as a "technical bull market." This move has captured the attention of global investors, with heavyweight stocks Tencent Holdings and Alibaba Group leading the charge as the core drivers of the index's upward momentum. This article provides an in-depth analysis of the rally from three dimensions: driving factors, heavyweight stock performance, and future outlook.

1. Multiple Positive Factors Converge, Hang Seng Breaks Technical Bull Market Threshold

According to data from multiple financial information platforms, the Hang Seng Index has risen over 20% from its January 2024 low, technically entering bull market territory. The backdrop of this rally is a confluence of multiple macroeconomic and policy factors:

• Warm Policy Winds from Beijing: Recently, Chinese regulators have intensively released signals of stabilizing growth, including marginal policy easing in areas such as the platform economy and real estate. The market generally expects that regulation of the internet industry will enter a normalization phase, which has directly boosted the valuations of tech stocks represented by Tencent and Alibaba.
• Improved Overseas Liquidity Expectations: The Federal Reserve has repeatedly signaled interest rate cuts in 2024. Although the exact timing remains uncertain, market expectations for a global liquidity inflection point are gradually heating up. Under the mechanism of the Hong Kong dollar's peg to the US dollar, the willingness of overseas funds to flow back into the Hong Kong stock market has increased, especially for large-cap tech stocks sensitive to interest rates.
• Valuation Discount Effect: Before the rebound, the Hang Seng Index's price-to-earnings ratio was at historical lows. Compared horizontally with major global stock indices, the valuation appeal of Hong Kong stocks is significant. Some international institutions have recently noted in reports that Hong Kong stocks have become one of the "high cost-performance" assets among major global markets.

2. Tencent and Alibaba Lead the Rally: Fundamental Recovery and Buyback Support

As the two highest-weighted constituent stocks in the Hang Seng Index, the stock price performance of Tencent Holdings and Alibaba Group has a decisive impact on the index's trajectory. In this round of rally, both have significantly outperformed the broader market, with distinct logic behind each:

Tencent Holdings: Market expectations for Tencent have improved mainly due to the recovery of its core gaming business and the rapid growth of advertising revenue from its video accounts. Additionally, Tencent has continued large-scale share buybacks. According to public information, its 2024 buyback amount has hit a record high for the same period. This action sends a clear signal to the market that management believes the stock is undervalued, effectively reducing the number of shares outstanding and supporting earnings per share.

Alibaba Group: Alibaba's rebound momentum stems more from expectations of efficiency improvements following its organizational restructuring. The company announced plans to spin off and list its business groups. Although some plans have been adjusted due to changes in the market environment, the market still holds expectations for the independent valuations of segments like Alibaba Cloud and International Digital Commerce. At the same time, Alibaba has also stepped up its buyback efforts in 2024, forming a "buyback duo" with Tencent.

It is worth noting that besides Tencent and Alibaba, other tech stocks such as Meituan, JD.com, and NetEase have also recorded considerable gains, creating a sector-wide linkage effect that further solidifies the Hang Seng's upward trend.

3. Future Outlook: Can the Technical Bull Market Evolve into a Trend Rally?

Although the Hang Seng has entered a technical bull market, there is market disagreement on whether the rally can be sustained. Synthesizing views from multiple institutions, key variables for the subsequent trend include:

• Realization of Earnings Recovery: The current valuation repair is primarily based on improved expectations. Whether the second-quarter and second-half earnings reports of listed companies can verify earnings growth will be the core factor determining the rally's height. If the revenue and profit growth of giants like Tencent and Alibaba fall short of expectations, the market may face downward pressure.
• Overseas Policy Risks: In the US election year, uncertainties surround Sino-US relations and regulatory policies for Chinese concept stocks. Additionally, if the Federal Reserve delays the pace of rate cuts, global risk appetite may be suppressed again, affecting the speed of foreign capital inflows into Hong Kong stocks.
• Sustainability of Fund Flows: Southbound capital (mainland funds flowing through the Stock Connect) has been a significant buying force in Hong Kong stocks recently. According to HKEX data, southbound funds have recorded net buying for several consecutive weeks. However, if mainland liquidity tightens or the A-share market presents better opportunities, fund flows could reverse.

Overall, the Hang Seng Index's breakthrough of the technical bull market threshold is the result of the combined effect of policies, valuations, and fund flows. The leadership of Tencent and Alibaba also reflects the market's restored confidence in core assets. However, historical experience shows that the transition from a technical bull market to a full-fledged bull market often requires more solid fundamental support. While optimistic, investors still need to closely monitor marginal changes in corporate earnings and macroeconomic policies to cope with potential market volatility.