Hang Seng Index Fluctuates, Edges Up 0.3% at Midday; Tencent Leads Gains Ahead of Earnings

Hong Kong stocks traded mixed on Thursday, with the Hang Seng Index fluctuating within a narrow range and edging up about 0.3% at midday. Market attention was centered on Tencent Holdings (00700), which is set to release its earnings after the market close. Tencent's share price showed strength ahead of the results, leading the market and boosting sentiment across the tech sector. However, trading volume did not expand significantly, indicating that investors remained cautious ahead of the heavyweight earnings report.

Hang Seng Index Fluctuates; Tencent Single-Handedly Supports the Market

The Hang Seng Index opened about 100 points higher but briefly turned negative before recovering on the back of Tencent and some heavyweight financial stocks. The index's midday range was less than 200 points. According to traders, the market lacked clear direction, with investors hoping for a positive surprise from Tencent's earnings while also worrying about geopolitical uncertainties and an unclear interest rate outlook, leading to a tug-of-war in the market. At the midday close, the Hang Seng Index stood at around 20,500 points, up about 0.3%. The H-shares Index and the Tech Index also posted modest gains, with the Tech Index slightly outperforming the broader market, mainly driven by Tencent.

Tencent rose about 2% at midday, contributing roughly 40 points to the Hang Seng Index's gain, making it the biggest driver of the market's rise. Market consensus expects Tencent's upcoming second-quarter results to show a recovery in its gaming business, steady growth in advertising revenue, and continued commercialization of its video accounts, with earnings likely to beat market expectations. Analysts noted that Tencent has recently stepped up its share buybacks, which also supports the stock price. Clear inflows ahead of the earnings suggest strong institutional confidence in its fundamentals.

Fund Flows: Tech Sector Favored; Defensive Stocks Under Pressure

In terms of fund flows, money clearly favored the technology and internet sectors today. Besides Tencent, Meituan (03690) and Alibaba (09988) also posted slight gains, though less than Tencent. In contrast, defensive stocks such as utility and high-dividend names like CLP Holdings (00002) and Hong Kong and China Gas (00003) saw pullbacks, indicating a slight uptick in risk appetite as funds rotated from defensive sectors into growth stocks. However, overall turnover was about 10% lower than the same period yesterday, suggesting that the market was reluctant to take big positions ahead of Tencent's earnings, with a strong wait-and-see mood.

On the Stock Connect front, southbound capital saw a net inflow of approximately HK$2 billion at midday, mainly into Tencent and some biotech stocks, reflecting high expectations from mainland investors for Tencent's results. Notably, the recent stabilization of the yuan exchange rate and continued policy signals supporting growth from the mainland have provided some support to Hong Kong stocks. However, foreign fund flows remain influenced by expectations of the Federal Reserve's interest rate policy and may stay volatile in the short term.

Tencent Earnings Focus: Gaming, Advertising, and Buybacks

Tencent is scheduled to release its interim results after the market close today. The market is focusing on three key points: First, the pace of recovery in its domestic gaming business following the resumption of game licenses, especially contributions from new titles like "Valorant" and "Dungeon & Fighter: Origins"; Second, whether video account advertising revenue can sustain high double-digit growth and how AI technology is improving ad targeting; Third, the execution of its share buyback program and whether it will raise dividends to reward shareholders. According to Bloomberg consensus estimates, Tencent's second-quarter revenue may grow about 8% year-over-year, with adjusted net profit growth potentially exceeding 20%, but the actual figures are yet to be announced.

Some market participants believe that Tencent's current valuation remains reasonable, with a P/E ratio of about 15 times, below its historical average. If earnings meet expectations, the stock price could break higher. However, if results disappoint or management provides conservative guidance for the second half, profit-taking could occur and drag on the broader market. Therefore, the afternoon performance of the Hang Seng Index will largely depend on how Tencent's earnings are interpreted, and investors should closely monitor management's comments during the conference call.

Outlook: Earnings to Dominate Short-Term Direction

Looking ahead to the afternoon, Hong Kong stocks are likely to continue being driven by Tencent's earnings. If the data is favorable, the Hang Seng Index may challenge resistance at 20,700 points; otherwise, it could fall back to find support near 20,300 points. Technically, the index has formed short-term support around 20,500 points, with the 10-day and 20-day moving averages converging at 20,400 points, providing dual support below. In the medium term, the market remains focused on the strength of mainland China's economic recovery and the Fed's September meeting. If U.S. economic data weakens, expectations of rate cuts could rise, potentially benefiting Hong Kong stock liquidity.

Overall, today's Hong Kong market is characterized by a "wait-and-see before earnings, stock-specific leadership" pattern. As a heavyweight stock, Tencent's earnings performance will directly affect short-term market sentiment. Investors should remain flexible and wait for clarity on earnings before making moves, avoiding excessive risk during uncertain times.