Hang Seng Index Falls for Sixth Straight Session, Breaks Below 18,000; Tencent and Alibaba Buck Trend with Net Northbound Inflows

Hang Seng Index Falls for Sixth Straight Session, Breaks Below 18,000; Tencent and Alibaba Buck Trend with Net Northbound Inflows

Hong Kong's Hang Seng Index has recently suffered six consecutive trading days of declines, falling below the 18,000-point threshold. Market sentiment is subdued, trading volumes have shrunk, and investor concerns over the macroeconomic outlook and geopolitical risks are the main drags. However, amid the overall weakness, data from the Hong Kong Exchange on northbound capital flows shows that Tencent Holdings and Alibaba-SW have bucked the trend with net purchases by mainland Chinese investors, drawing market attention.

Hang Seng Under Pressure: Multiple Factors at Play

The Hang Seng Index has retreated from its recent highs, falling for six consecutive days and breaking below the psychological 18,000-point level. Analysts attribute this decline to several factors:

• Tighter Fed Policy Expectations: Rising expectations that the Federal Reserve will maintain high interest rates in 2024 have strengthened the U.S. dollar index, increasing capital outflow pressure from emerging markets, with Hong Kong stocks, as an offshore market, bearing the brunt.
• Weak Mainland Economic Data: Recent releases show China's manufacturing PMI has been below the 50-point boom-bust line for several months, and the property sector recovery is slow, raising doubts about economic growth momentum.
• Heightened Geopolitical Risks: Tensions in the international arena and downgrades of Hong Kong stocks by some foreign institutions have intensified risk aversion.

In addition, southbound capital via the Stock Connect has seen net outflows on some trading days, further weighing on the index. However, against the backdrop of overall capital outflows, the contrarian buying of certain tech leaders by northbound capital deserves attention.

Northbound Capital Bucks the Trend: Tencent and Alibaba in Favor

According to northbound capital flow data disclosed by the Hong Kong Exchange, during the six-day Hang Seng decline, Tencent Holdings and Alibaba-SW each received net purchases ranging from hundreds of millions to billions of Hong Kong dollars. This phenomenon stands in stark contrast to the overall market sell-off, reflecting mainland capital's long-term value assessment of these two tech giants.

Tencent Holdings: As a heavyweight stock in the Hong Kong market, Tencent's share price has recently come under pressure, but northbound capital has continued to buy net. Analysts believe Tencent's moats in gaming, social media, and enterprise services are solid, and its share buyback program and dividend policy have enhanced shareholder return expectations. Additionally, the market has high hopes for Tencent's layout in the AI large model space, believing it is well-positioned to benefit from the next technology cycle.

Alibaba-SW: After undergoing organizational restructuring, Alibaba has focused on its core e-commerce and cloud computing businesses, with cost reduction and efficiency improvement results gradually becoming apparent. The contrarian buying by northbound capital reflects market recognition of its improved profitability following the business restructuring. Meanwhile, Alibaba's expansion in overseas e-commerce markets and the growth potential of its cloud computing business are seen as long-term catalysts.

Capital Logic: Valuation Discount and Policy Dividend

The logic behind northbound capital's contrarian buying of Tencent and Alibaba during the downturn is mainly based on the following:

• Valuation Attractiveness: After the recent correction, the P/E ratios of Tencent and Alibaba have fallen to historically low ranges, offering a clear discount compared to U.S. tech giants. For mainland capital seeking long-term returns, the current price levels provide a margin of safety.
• Improved Policy Environment: The regulatory stance on the platform economy in mainland China has shifted from "strong regulation" to "standardized and healthy development," supporting platform companies in stabilizing employment and boosting consumption. This shift has reduced policy uncertainty risks.
• Buyback and Dividend Support: Both Tencent and Alibaba are conducting large-scale share buybacks and increasing dividend payout ratios, providing a floor for their stock prices. Northbound capital tends to step in when stock prices are low to capture the value enhancement from buybacks.

Outlook: Short-Term Pressure, Long-Term Window for Positioning

After the Hang Seng broke below the 18,000-point mark, the market still faces challenges from tightening liquidity and sentiment repair in the short term. However, the contrarian buying by northbound capital is often seen as one of the signals of a market bottom. Historical experience shows that when mainland capital concentrates on buying high-quality leaders during a sharp Hong Kong stock decline, the index often stages a phased rebound later.

For investors, the current juncture requires attention to the following variables: the Fed's September FOMC meeting stance, the intensity of mainland fiscal and monetary policy stimulus, and the sustainability of Stock Connect capital flows. As core assets in the Hong Kong market, the valuation recovery process for Tencent and Alibaba will depend on the resonance between fundamental improvement and market sentiment. Taking contrarian positions in a weak market requires patience, waiting for catalysts to emerge.