Hang Seng Index Nears Half-Year Close: Tencent and Alibaba Lead Tech Rebound Analysis

Hang Seng Index Nears Half-Year Close: Tencent and Alibaba Lead Tech Rebound

As the first half of 2025 draws to a close, Hong Kong's Hang Seng Index, after earlier volatility, has recently shown signs of stabilization and recovery. The tech sector has been the primary driver of this rebound, with heavyweight stocks Tencent Holdings and Alibaba-SW particularly prominent, lifting the index back into positive territory. Market sentiment has shifted from cautious to optimistic, with investors increasingly anticipating improved policy environments and corporate earnings recovery in the second half of the year.

Hang Seng Half-Year Performance: Down Then Up, Tech Stocks as the Anchor

Looking back at the first half, the Hang Seng Index's trajectory can be divided into two phases. In the first quarter, the index came under pressure due to external interest rate fluctuations and geopolitical factors, testing key support levels multiple times. Entering the second quarter, market confidence gradually recovered, supported by marginal improvements in mainland economic data and sustained net inflows via the Hong Kong Stock Connect. According to data from the Hong Kong Exchange, southbound net buying volume in the second quarter significantly expanded compared to the first quarter, indicating mainland funds' recognition of the valuation trough in Hong Kong stocks.

As of late June, the Hang Seng Index has rebounded a certain percentage from its first-half low, with the tech sector contributing the majority of gains. Among them, Tencent and Alibaba, as the two highest-weighted stocks in the Hang Seng Tech Index, have had a notable impact on the index through their price rebounds. Analysts point out that the positive progress of these two internet giants in cost reduction, share buybacks, and AI business deployment has become the core logic for fund reallocation.

Tencent Holdings: Dual Drive from Buybacks and AI

Tencent Holdings is one of the leading stocks in this tech rebound. Since the beginning of the year, the company has intensified its share buyback efforts, with daily repurchase amounts maintained at a high level according to public information, sending a clear signal to the market that management considers the stock undervalued. Meanwhile, Tencent has accelerated its deployment in the artificial intelligence field, with its Hunyuan large model being implemented in multiple industry scenarios, driving a recovery in cloud business revenue growth.

From a fundamental perspective, Tencent's advertising and gaming businesses have performed steadily. Revenue from video account advertising continues to grow rapidly, becoming a new growth engine, while the international gaming business has further expanded overseas market space through the launch of several new games. Multiple brokerages have raised their target prices for Tencent in recent reports, believing its current valuation remains attractive and the earnings recovery trend is likely to continue in the second half.

Alibaba: Initial Results from Organizational Transformation

Alibaba also plays a key role in this rebound. Since completing the "1+6+N" organizational restructuring in 2024, the independence and decision-making efficiency of its various business segments have significantly improved. According to the company's financial reports, the Taobao and Tmall Group has achieved sequential improvements in user growth and order frequency, while Alibaba Cloud maintains its market share lead through price reduction strategies and AI product integration.

Market expectations for Alibaba have also improved due to its ongoing buyback plan. The company announced an expansion of its share repurchase program to a certain amount and has already executed most of it, providing solid support for the stock price. Additionally, Alibaba's layout in cross-border business, such as the rapid growth of its international digital commerce segment, has attracted the attention of long-term investors.

Market Sentiment: From Cautious to Optimistic

The tech rebound has not only driven the index upward but also significantly improved overall market sentiment. The volatility indicator for the Hang Seng Tech Index has recently declined, indicating that investor panic has subsided. According to options data from the Hong Kong Exchange, the open interest of call options increased notably in June, suggesting a more positive market outlook.

In terms of fund flows, besides the continuous influx of southbound funds, some international long-term funds have also begun to replenish their Hong Kong stock positions. Market participants point out that Hong Kong stocks' current valuation is relatively low among major global markets, and the expected earnings growth rate of tech stocks is superior to that of traditional industries, prompting a shift from defensive to growth sectors.

Second Half Outlook: Policy and Earnings Resonance Expected

Looking ahead to the second half, analysts believe the Hang Seng Index is likely to continue its rebound trend, but attention should be paid to changes in the external interest rate environment and the pace of mainland economic recovery. If expectations for a Fed rate cut become clearer, it will ease liquidity pressure on Hong Kong stocks; meanwhile, continued efforts in mainland fiscal and industrial policies, especially supportive attitudes towards the platform economy, will provide fundamental support for tech stocks.

Tencent and Alibaba, as the "dual engines" of Hong Kong's tech sector, will remain the market focus regarding their subsequent performance. If these two companies can deliver results that exceed expectations in areas such as AI commercialization and overseas expansion, the Hang Seng Index could open new upward space after the half-year close. However, short-term market fluctuations due to profit-taking are possible, and investors should monitor changes in trading volume and the movements of heavyweight stocks.