Hang Seng Index Rally Stalls: Tencent and Alibaba Under Pressure, HKEX Volumes Slump

Hang Seng Rally Stalls as Tech Titans Tencent and Alibaba Face Headwinds

Hong Kong's Hang Seng Index has recently shown renewed signs of weakness after a brief rebound, with market sentiment turning cautious. Analysts point to the underperformance of heavyweight tech stocks—particularly Tencent Holdings (00700.HK) and Alibaba Group (09988.HK)—under the dual pressures of regulation and earnings, combined with persistently low trading volumes at HKEX, as key reasons for the index's faltering recovery.

Regulatory Overhang Lingers, Tech Valuations Under Pressure

Since 2021, mainland China's regulatory crackdown on internet platforms has deepened. Although the policy tone softened somewhat in 2023, concerns over the long-term regulatory framework have not fully dissipated. As industry leaders, Tencent and Alibaba have borne the brunt. Reports indicate that Tencent faces uncertainties in game license approvals and fintech compliance, while Alibaba's core commerce profitability is questioned amid intensifying e-commerce competition and slowing cloud business growth. Both companies' recent quarterly earnings showed slowing revenue growth and net profit that missed some market expectations, causing their share prices to encounter resistance during the rebound.

For instance, Tencent's advertising business has benefited from the economic recovery, but its gaming segment remains constrained by the pace of license issuance, and overseas expansion faces geopolitical risks. Alibaba, meanwhile, contends with fierce competition from emerging platforms like Pinduoduo and Douyin, and the effectiveness of its "1+6+N" organizational restructuring remains to be seen. The market generally believes that under the dual pressures of regulation and competition, valuation recovery for tech leaders will take longer.

HKEX Trading Volumes Slump, Liquidity Concerns Mount

Another critical factor behind the Hang Seng's lackluster rebound is the persistent decline in HKEX trading volumes. According to HKEX public data, the average daily turnover of Hong Kong stocks in the first quarter of 2024 fell year-on-year and was below historical averages. The shrinking turnover has directly weakened the market's profit-making effect, discouraging incremental capital inflows. Analysts attribute the liquidity issues partly to the Federal Reserve's high-interest-rate environment, which has driven capital back to dollar-denominated assets, and partly to the slower-than-expected pace of mainland China's economic recovery. Additionally, net inflows from Southbound Stock Connect have fluctuated recently, further exacerbating liquidity concerns.

Low trading volumes also pressure HKEX itself. As Hong Kong's sole exchange, HKEX's revenue is highly correlated with market turnover. If volumes remain weak, HKEX's earnings outlook will suffer, dragging down its share price. This, in turn, could further undermine investor confidence in the Hong Kong stock market, creating a negative feedback loop.

Market Sentiment Cautious, Upside Limited

Overall, the current Hang Seng rebound appears more as a technical recovery from oversold conditions rather than a trend reversal. Valuation recovery for tech leaders requires clear signals from both earnings and regulation, while a revival in HKEX turnover depends on improvements in the macroeconomic and geopolitical environment. In the near term, market sentiment is likely to remain cautious, limiting the Hang Seng's upside. Investors should closely monitor earnings guidance from heavyweight stocks like Tencent and Alibaba, as well as signs of liquidity improvement at HKEX, to gauge whether the market can sustain a rally.