Hang Seng Drops 1.2% in Morning Session; Tencent and Alibaba Buck the Trend, Funds Flow to Tech Giants

Hong Kong stocks experienced a volatile downward trend in the morning session, with the Hang Seng Index falling approximately 1.2%, reflecting cautious market sentiment overall. However, beneath the index pressure, heavyweight stocks showed clear divergence, as Tencent Holdings and Alibaba rose against the market, becoming the core pillars supporting the market. Fund flows indicate that capital is moving out of cyclical and financial stocks into tech leaders, highlighting a growing preference for high-certainty assets.

Hang Seng Under Pressure, Divergence Among Heavyweights Intensifies

In early trading, the Hang Seng Index opened lower and hovered near lows, falling about 1.2% by midday, dragged by external market volatility and pullbacks in some heavyweight stocks. According to market analysts, overnight weakness in US tech stocks, coupled with geopolitical uncertainties, weighed on risk appetite in Hong Kong. However, the index-level weakness did not overshadow structural opportunities in individual stocks, as tech giants Tencent and Alibaba rose against the trend, playing a key role in stabilizing market confidence.

Specifically, Tencent rose over 1% in the morning, while Alibaba gained nearly 1%, together contributing about 50 points of support to the Hang Seng Index. Meanwhile, financial stocks such as HSBC Holdings and AIA Group performed weakly, dragging the index lower. This divergence among heavyweights reflects a rapid shift of funds toward tech leaders with stronger earnings visibility amid macro uncertainties.

Fund Flows: Tech Attracts Capital, Cyclicals Face Headwinds

In terms of fund flows, net inflows via southbound trading narrowed today, but the structure clearly favored the tech sector. According to data from the Hong Kong Stock Exchange, Tencent and Alibaba ranked as the top two net buys by southbound funds, with combined net inflows exceeding HK$2 billion. Conversely, cyclical stocks such as energy and raw materials saw net outflows, with China Petroleum & Chemical and China Shenhua falling more than 2% in the morning.

Analysts point out that this rotation is not a short-term phenomenon. Against the backdrop of slowing global economic growth, investors prefer tech leaders with stable cash flows and deep moats over cyclicals that are more sensitive to commodity price fluctuations. Additionally, several international investment banks have recently raised their target prices for Tencent and Alibaba, citing underestimated growth potential in their AI and cloud services, further reinforcing the inflow trend.

Why Tencent and Alibaba Rose Against the Trend

Tencent's strong performance was mainly driven by an unexpected recovery in its gaming business. Industry data shows that several of Tencent's established games saw a sequential rebound in gross billings in Q2, while the domestic launch of new game "Valorant" performed impressively, boosting optimism about its second-half earnings. Moreover, Tencent's continued investment in AI large models is seen as a new engine for long-term growth.

For Alibaba, its core e-commerce business has shown resilience amid the consumption recovery, while the planned spin-off and listing of its Cloud Intelligence Group provides a catalyst for valuation re-rating. Sources say Alibaba Cloud has initiated a new funding round with a potential valuation of up to $100 billion, a development that boosted market confidence. Additionally, Alibaba recently announced an expansion of its share buyback program, signaling management's confidence in long-term value.

Outlook: Focus on Policy and Earnings Verification

Looking ahead to the afternoon session and the coming trading days, the direction of Hong Kong stocks will depend on multiple domestic and external factors. On one hand, the path of US monetary policy remains uncertain; if upcoming US inflation data exceeds expectations, it could trigger volatility in global risk assets. On the other hand, domestic policy continues to signal growth stabilization, including recent measures to boost consumption and support the tech industry, which could provide a floor for Hong Kong stocks.

For investors, in the current environment, stock selection is more important than predicting the index direction. Tencent and Alibaba, as the "ballast stones" of Hong Kong's tech sector, will see their earnings delivery become the key to determining future trends. It is recommended to monitor the upcoming Q2 earnings reports and the actual revenue contribution from AI-related businesses. At the same time, investors should be wary of pullback risks after sharp short-term gains and manage positions prudently.

Overall, despite the weak morning performance of Hong Kong stocks, the divergence among heavyweights reveals a chase for quality assets. With macro uncertainties persisting, structural market conditions may dominate in the short term, and tech leaders are likely to continue acting as a "safe haven."