Hang Seng Index Falls for Third Day, Breaks Below 18,000; Tencent and Alibaba Buck Trend with Southbound Inflows

Hang Seng Index Falls for Third Day, Breaks Below 18,000; Tencent and Alibaba Buck Trend with Southbound Inflows

Hong Kong's Hang Seng Index fell for three consecutive trading days this week, breaking below the key 18,000-point level as market sentiment turned cautious. The index closed near 17,900, down over 2% from last week's highs. Analysts attributed the decline to a combination of global market volatility, weaker-than-expected Chinese economic data, and earnings pressure on some heavyweight stocks. However, despite the overall pressure, tech leaders Tencent Holdings (00700.HK) and Alibaba Group (09988.HK) bucked the trend, attracting net buying from southbound investors, signaling long-term confidence in core assets.

Short-Term Pressure: Multiple Factors Converge

The Hang Seng's recent decline was driven by three main factors. First, hawkish signals from the Federal Reserve weighed on global risk assets. The latest Fed meeting minutes showed officials' concerns about sticky inflation, hinting at a possible delay in rate cuts, which strengthened the U.S. dollar and increased capital outflows from emerging markets. Second, China's April manufacturing PMI fell to 50.4, below the expected 50.6, indicating a slowdown in economic recovery momentum and dampening hopes for policy stimulus. Third, Hong Kong stocks faced tight liquidity, with average daily turnover hovering around HK$100 billion, significantly lower than early this year, as the market lacked fresh capital inflows.

By sector, traditional heavyweight stocks like real estate and financials led the decline, dragging down the index. For instance, Ping An Insurance (02318.HK) and HSBC Holdings (00005.HK) both recorded weekly losses of over 1%. However, the tech sector showed divergence, with some stocks gaining against the trend.

Tencent and Alibaba Buck Trend with Southbound Inflows

Despite the Hang Seng's weak performance, southbound investors adopted a "buy the dip" strategy. According to HKEX data, over the first three trading days of the week, southbound capital recorded a net inflow of approximately HK$8 billion, with Tencent and Alibaba as the main beneficiaries. Tencent saw net buying of about HK$1.5 billion, while Alibaba attracted around HK$1 billion, together accounting for nearly 30% of total southbound net inflows.

Market analysts attribute the southbound buying to several factors: First, both companies have stepped up share buybacks. Tencent has been repurchasing about HK$1 billion daily for several consecutive days, while Alibaba announced a new buyback plan, directly boosting investor confidence. Second, growth prospects in AI and cloud computing. Tencent's investments in the Hunyuan large model and enterprise services, along with Alibaba's focus on Tongyi Qianwen and cloud infrastructure, are seen as new engines for future earnings growth. Third, valuation appeal. After recent adjustments, the P/E ratios of Tencent and Alibaba are at historically low levels, making them attractive for long-term investors.

"Capital is seeking certainty," said a strategist at a Chinese brokerage. "Despite the market pressure, Tencent and Alibaba, as core Hong Kong stocks, have relatively solid fundamentals, and their buyback activities provide a safety net. Southbound inflows reflect recognition of their long-term value."

Market Sentiment and Outlook

Current sentiment in the Hong Kong stock market is generally cautious. After breaking below 18,000, the Hang Seng Index showed technical breakdown signals, potentially testing the 17,500 support level in the short term. However, some institutions believe that as China's pro-growth policies gradually take effect and expectations for Fed rate cuts re-emerge, the Hang Seng could rebound by the end of the second quarter.

Notably, continued southbound inflows indicate that mainland investors have not lost confidence in Hong Kong stocks. Statistics show that cumulative net southbound buying this year has exceeded HK$200 billion, far surpassing the same period last year, partly offsetting foreign capital outflows. Additionally, recent reforms by HKEX, including optimizing listing mechanisms and improving market liquidity, have laid the groundwork for medium- to long-term market development.

Overall, the Hang Seng's short-term pressure results from multiple factors, but the counter-trend buying in Tencent and Alibaba suggests the market is not entirely pessimistic. Investors should closely monitor external policy changes, Chinese economic data, and corporate earnings to identify structural opportunities.