Hang Seng Index Falls Below 17,000 as Southbound Capital Defies Trend to Buy Tencent and Alibaba: Support Levels and Risk Analysis Ahead

Hang Seng Index Breaks Below 17,000 as Southbound Capital Defies Trend to Buy Tech Giants

The Hang Seng Index has weakened persistently in recent days, breaching the key 17,000-point threshold amid a mix of macroeconomic headwinds, dampening market sentiment. However, in a striking contrarian move, southbound capital has been net-buying through the Hong Kong Stock Connect for several consecutive sessions, with a focus on tech heavyweights like Tencent Holdings (00700) and Alibaba Group (09988). This divergence has sparked widespread debate over the index's support levels and the underlying logic of capital flows.

Key Drivers Behind the Hang Seng's Decline

The current downturn is fueled by both external and internal factors. Externally, the Federal Reserve's sustained high-interest-rate environment in 2024 has strengthened the U.S. dollar, siphoning capital from emerging markets. Domestically, China's economic recovery has lagged expectations, risks in the real estate sector remain unresolved, and regulatory uncertainties in certain industries have dampened risk appetite. Market analysts suggest that after breaking below 17,000, the next technical support level for the Hang Seng Index lies near 16,500. However, if the macro environment does not improve, downside risks persist.

Why Is Southbound Capital Buying Against the Trend?

In stark contrast to the index's performance, southbound capital has continued to flow in during the Hang Seng's decline. According to HKEX data, net southbound buying exceeded HKD 10 billion in the past week, with Tencent and Alibaba accounting for over 40% of the total. Analysts attribute this contrarian buying to several factors:

• Compelling Valuation: After recent corrections, the P/E ratios of Tencent and Alibaba have fallen to historically low levels, offering a significant discount compared to U.S. tech giants, making them attractive for long-term allocation.
• Share Buybacks and Dividends Support: Both Tencent and Alibaba have ramped up share repurchases. Tencent's cumulative buybacks in 2024 have exceeded HKD 100 billion, while Alibaba has expanded its buyback plan, providing a floor for their stock prices.
• Fundamental Resilience: Despite macro pressures, the core businesses of both companies—such as Tencent's gaming and advertising, and Alibaba's cloud computing and e-commerce—continue to grow steadily. Their AI-related initiatives also present new growth catalysts.

Support Levels and Downside Risks

From a technical perspective, the Hang Seng Index has strong support in the 16,500–16,800 range, which has been a multi-year low since 2023. However, investors should remain cautious about the following risks: First, if the Fed's pace of rate cuts in 2025 falls short of expectations, liquidity pressure on Hong Kong stocks may persist. Second, further weakening of China's economic data could trigger another wave of selling. Third, geopolitical risks, such as shifts in U.S.-China relations, may also impact market sentiment.

In summary, the contrarian buying by southbound capital reflects some institutional investors' recognition of the long-term value in Hong Kong stocks, but short-term uncertainties remain. Investors should closely monitor policy signals and capital flow changes, while managing positions to capture structural opportunities.