Hang Seng Index Faces Resistance: Can Tech Stocks Like Tencent and Alibaba Sustain the Rally?

Hang Seng Index Faces Resistance: Can Tech Stocks Sustain the Rally?

Today, the Hong Kong stock market showed a mixed and volatile pattern. The Hang Seng Index initially surged in early trading but encountered selling pressure later, significantly narrowing gains and indicating weakening rebound momentum. Market focus remains on the tech sector, particularly the strong performance of heavyweight stocks Tencent Holdings and Alibaba, which have been the main pillars supporting the broader market. However, investors are widely concerned: amid persistent external uncertainties and tight liquidity, can the tech-led rally continue and truly drive a sustained rebound for the Hang Seng Index?

Hang Seng Volatility: Three Factors Behind the Resistance

The Hang Seng Index experienced a choppy session today. Boosted by an overnight rally in U.S. tech stocks and expectations of mainland policy support, the index rose over 1% in early trade. However, profit-taking in the afternoon pared gains to near flat. Analysts attribute the resistance to three main factors:

• External Risk Pressure: The Federal Reserve's recent hawkish signals have tightened global liquidity expectations, making Hong Kong stocks, as an offshore market, more sensitive to interest rate changes. Although the market has partially priced in rate hike expectations, a stronger U.S. dollar continues to pressure capital inflows into emerging markets.
• Weak Internal Confidence: The pace of mainland China's economic recovery has diverged, with real estate and consumption data yet to show significant improvement, prompting some funds to stay on the sidelines. The Hang Seng Index has repeatedly failed to break through the 18,000-point level, forming short-term technical resistance.
• Lack of Sector Rotation: Apart from tech stocks, traditional sectors such as financials and real estate have performed weakly, failing to form a cohesive force. For the Hang Seng Index to break out effectively, more sectors need to participate in the rebound.

Tencent and Alibaba Lead: Tech Stocks' 'Lone Battle'

In today's session, Tencent Holdings and Alibaba both strengthened, posting the largest gains among major index constituents and contributing the bulk of the Hang Seng Index's rise. For Tencent, the market remains optimistic about its overseas gaming business and the commercialization prospects of its video account. Alibaba benefits from expectations of its cloud business spin-off and solid e-commerce performance. Both companies recently reported quarterly earnings that exceeded market expectations, with profit improvement serving as the core driver of their stock price gains.

However, the strength in tech stocks has not effectively spread to other sectors. Second-tier tech stocks like Meituan and JD.com saw limited gains, while previously hot sectors such as semiconductors and new energy actually pulled back. This reflects that capital remains highly concentrated in a few leaders, and overall market bullish sentiment is not strong. Some market participants point out that if Tencent and Alibaba cannot drive more tech stocks higher, the sustainability of the broader market rebound will face challenges.

Capital Flows: Southbound and Foreign Funds Intensify Battle

In terms of capital flows, today's net buying by southbound funds narrowed compared to previous days, indicating that mainland investors are cautious about chasing highs. Meanwhile, foreign fund participation in the Hong Kong market remains low, with some hedge funds still reducing their exposure to Chinese assets. This pattern of 'domestic caution, foreign wariness' leaves the Hang Seng Index lacking incremental capital to drive gains.

However, there are also positive signals. According to Hong Kong Exchange data, some long-term institutional investors have recently begun to accumulate positions in Tencent and Alibaba at lower levels, providing a floor for tech stocks. But overall, capital flows have not yet formed a trend reversal, and the rebound relies more on existing capital rotation.

Outlook: Can Tech Stocks Lead the Rebound?

Overall, whether the Hang Seng Index's short-term rebound can continue depends on two key factors:

• Tech Stocks' Earnings Delivery Ability: Tencent and Alibaba have demonstrated earnings resilience through their earnings reports, but market expectations for their future growth have already been raised. If subsequent quarterly reports fail to consistently beat expectations, their stock prices may face downward pressure.
• Policy and Macro Environment: Whether mainland China's pro-growth policies will be further intensified and whether the Fed's rate hike path will show signs of easing will directly affect market risk appetite. If policy surprises to the upside emerge, tech stocks could lead the broader market to break through resistance.

Most analysts believe that as core assets in Hong Kong, tech stocks' valuations are already at historically low levels, offering a certain margin of safety. However, until the external environment improves significantly, the rebound may follow a 'two steps forward, one step back' volatile pattern. Investors should closely monitor next week's Fed meeting and mainland economic data to gauge the sustainability of the rebound.