Hang Seng Rally Hits Resistance: Can Tencent and Alibaba Sustain the Uptrend? Hong Kong Stock Outlook

Hang Seng Rally Hits Resistance: Can Tencent and Alibaba Sustain the Uptrend?

Recently, the Hang Seng Index has staged a rebound near key support levels after a rapid decline. However, the rebound has not been smooth, as the index faces significant resistance near previous high-volume trading zones. Market participants are closely watching whether the upward drivers for heavyweights like Tencent Holdings (00700.HK) and Alibaba Group (09988.HK) are sustainable enough to lead the Hang Seng out of its current predicament.

Technical and Capital Flow Dynamics Behind the Rebound

From a technical perspective, after rebounding from recent lows, the Hang Seng has been trading in a narrow range near a key round-number level for several consecutive sessions, with trading volume failing to expand effectively. Analysts point out that this level is both a heavily congested area for trapped buyers and a confluence of several major moving averages, leading to intense battles between bulls and bears. On the capital flow front, southbound (north-to-south) capital showed net inflows in the early stages of the rebound, but the pace has slowed in recent sessions, indicating diverging views among mainland Chinese investors on the market's outlook. Additionally, the latest Federal Reserve meeting minutes revealed that policymakers remain cautious about the inflation outlook, leading to a revision in market expectations for the pace of rate cuts, which has somewhat dampened risk appetite for Hong Kong stocks.

Tencent and Alibaba: Earnings-Driven Growth and Valuation Repair

As the two largest weighted stocks in the Hang Seng Index, the performance of Tencent and Alibaba has a significant impact on the index. Tencent's recent share price gains have been primarily driven by better-than-expected performance in its gaming business and the accelerated monetization of its video accounts. According to the company's financial reports, its advertising revenue has maintained double-digit growth for several consecutive quarters, becoming a new profit growth driver. Meanwhile, Tencent's layout in the AI large model space has also attracted market attention, with some institutions believing it has the potential to achieve commercial application first.

For Alibaba, the impetus for its stock rebound comes more from the stabilization of its core e-commerce business and the anticipated spin-off of its Cloud Intelligence Group. After years of regulatory adjustments, Alibaba has refocused on its core businesses through its "1+6+N" organizational restructuring. The market generally expects that if the Cloud Intelligence Group successfully lists independently, it will unlock its undervalued asset value. Additionally, Alibaba's recent investments in overseas e-commerce platforms (such as Lazada and Trendyol) are beginning to yield returns, with its international retail business growing significantly faster than its domestic business, providing incremental revenue.

Three Key Tests for the Sustainability of the Uptrend

Despite the strong short-term performance of Tencent and Alibaba, the sustainability of their leadership faces multiple challenges. First, on the macro level, uncertainty surrounding the US election results and potential fluctuations in Sino-US economic relations could impact Hong Kong stock liquidity. If the US dollar index strengthens again, capital may flow back to the US from emerging markets, putting pressure on Hong Kong stocks. Second, on the industry level, the user growth dividend for the domestic internet industry has largely peaked. Both Tencent and Alibaba need to maintain growth by increasing average revenue per user (ARPU), a process that requires time to validate. Finally, on the valuation front, after this round of rebound, the price-to-earnings ratios of Tencent and Alibaba have rebounded to near their historical medians. Further upside requires stronger earnings catalysts, such as actual revenue contributions from AI businesses or large-scale share buyback programs.

Institutional Views: Short-Term Volatility, Medium-Term Optimism

Multiple institutions hold a cautiously optimistic view on the Hang Seng Index's outlook. Some strategy analysts point out that the current valuation of the Hang Seng is still at a historically low percentile, and China's economic data is showing signs of marginal improvement, such as the year-on-year growth turnaround in industrial profits for August, providing fundamental support for Hong Kong stocks. However, in the short term, market sentiment is susceptible to external disturbances, and the index is likely to maintain range-bound trading, awaiting clearer policy signals or an earnings inflection point. For Tencent and Alibaba, institutions generally believe they are core assets with long-term allocation value, but there is a need for technical corrections after their recent sharp gains.

Conclusion: Focus on the Balance Between Catalysts and Risks

In summary, the Hang Seng Index's rebound hitting resistance is the result of multiple factors converging. Whether the leadership of Tencent and Alibaba can be sustained depends on whether their fundamental improvements can exceed expectations and whether the external macroeconomic environment is supportive. While investors focus on catalysts such as AI commercialization and cloud business spin-offs, they also need to be wary of geopolitical risks and changes in capital flows. In the absence of clear directional signals, the market is likely to continue exhibiting structural trends, with the performance of heavyweight stocks determining the success or failure of the index's breakout.