Hong Kong equities staged a strong rebound following a period of consecutive declines.

The Hang Seng Index closed up 1.57%, while the Hang Seng Tech Index surged 3.23%. The Hang Seng Biotech Index jumped 6.66%, and the Hang Seng China Enterprises Index gained 2.81%. The E Fund Hong Kong Exchange Tech 100 ETF, which tracks the HKEX Tech 100 Index, also moved higher, rising 3.22%.

Tech and Internet Stocks Lead Gains

Technology and internet stocks rallied across the board. NetEase-S and JD Health both rose more than 6%. Trip.com Group-S, Baidu Group-SW, Bilibili-W, and Meituan-W all gained over 5%. Chip stocks performed strongly, with GigaDevice soaring 14.59%, ASMPT climbing 11.23%, and Huahong Grace advancing more than 7%.

Biopharma Sector Shines Brightly

The biopharmaceutical sector was a standout performer. Laipu Biopharma-B, which debuted on its first day of trading, skyrocketed 103.54%. Duality Biologics-B rose 16.09%. Shares of XtalPi, InnoCare Pharma, Ascentage Pharma, and Akeso all increased by more than 10%.

On the news front, the National Healthcare Security Administration announced that 557 drugs passed preliminary review for the national reimbursement drug list, and 54 drugs passed preliminary review for a commercial health insurance innovative drug directory. This marks the entry of the "public insurance + commercial insurance" dual-directory negotiation into a substantive phase, with newly introduced mechanisms like pre-declaration and an eight-year price protection also being implemented.

Regarding the innovative drug sector, China Securities (CSC) noted that in recent years, revenue from China's innovative drugs has grown rapidly, with leading companies moving towards scale profitability. The industry is developing rapidly, driven by technological breakthroughs, accelerated internationalization, and policy support.

"The global competitiveness of domestic innovative drugs is steadily being realized. The core issue at the current stage is not whether fundamentals are improving, but when the negative feedback loop in capital flows will end," said Zhou Sicong, a fund manager at Ping An Fund. He believes innovative drugs are currently in a phase similar to the "late stage of cleansing out" seen in the baijiu sector during 2013-2014. Historically, after completing a bottoming-out process, the baijiu sector experienced a sustained bull run lasting several years.

"In the past, innovative drugs were widely considered a high-risk, high-investment industry, implying a need for high returns to match the risk. However, in the future, as these companies develop self-sustaining capabilities, they will enter a stable profit period, leading to a significant shift in the sector's valuation framework. We are now in the stage of waiting for this transition to occur," said Chen Cong, a fund manager at Xingquan Global Fund.

Is This a Turning Point or a Technical Bounce?

The key question is whether this strong rebound after a prolonged slump is merely a technical recovery or the beginning of a trend reversal.

Since the start of 2026, Hong Kong stocks have significantly underperformed other Asian markets. The Hang Seng Index even briefly fell below the 23,000-point level. Year-to-date, it is down 10.16%, while the Hang Seng Tech Index has fallen over 20% this year and more than 10% since June, once hitting its lowest point since January 2025.

Zhou Junzhi, Chief Macro Analyst at China Securities (CSC), believes three pressures have weighed on Hong Kong stocks in 2026. On the fundamental side, there has been concentrated downward revisions to earnings for heavyweight stocks like internet platforms and the automotive chain, with upward revisions in hard tech unable to offset this. On the valuation side, the US dollar and US Treasury yields have imposed a dual constraint on the offshore market, leading to sustained foreign capital outflows. At the micro-trading level, the third quarter faces liquidity supply disruptions from IPOs and share lock-up expiries.

An analysis from Huatai Securities noted that from June 15 to 19, Hong Kong stocks weakened in a one-way move, primarily constrained by a lack of a strongly attractive market narrative, leading to a shift from range-bound trading to a downtrend amid capital outflows. Macroscopically, a strengthening US dollar index above 101 pressured emerging markets broadly, diluting the impact of RMB appreciation. The AH premium index rose to 122%. Microscopically, characteristics of存量博弈 (stock game) were evident, with non-AI stocks turning from stagnation to persistent declines, and even dividend stocks with defensive attributes faced selling pressure from southbound capital. Huatai Securities believes the space for a reversal has not yet opened up, and the密集解禁 (dense lock-up expiry) of newly listed tech stocks in early July may still have a negative impact. In the short term, it only recommends focusing on stocks with high short interest and边际改善 (marginal improvement) in earnings expectations, such as media and innovative drug stocks, as well as high-dividend stocks that have fallen to attractive valuations.

Attractive Opportunities Spotted

Some institutions see highly attractive opportunities.

Citigroup stated in a recent research report that China's internet sector has significantly underperformed the broader market recently, mainly because it continues to be seen as a source of funds for the global AI hardware stock rally. However, this round of selling has created an attractive valuation window for entry.

Citigroup emphasized that even under stress tests assuming potential earnings downgrades of 10% to 30, the valuations of related tech and internet stocks remain highly attractive after deducting net cash. As of Q1 2026, Baidu's net cash reached $27.9 billion (78.8% of market cap), and NetEase's net cash was $24.3 billion (33.1% of market cap). Regarding unfinished share buyback authorizations, Alibaba still has $19.1 billion, while Trip.com, Baidu, NetEase, and JD.com collectively have over $14 billion. Citigroup expects these companies may accelerate buyback步伐 (pace) in the coming weeks, providing strong support for share prices. Based on forward valuation estimates, Tencent Holdings' 1-year forward P/E is 12.3x (11.8x after deducting cash), Baidu is only 2.8x after deducting cash, JD.com is 5.3x, and Kuaishou is 4.0x.

Conditions Needed for a Sustained Reversal

So, what conditions are needed for Hong Kong stocks to transition from underperformance to a sustained reversal?

Zhou Junzhi believes three conditions must align for Hong Kong stocks to shift from underperformance to strength: improvement in the global liquidity environment, a halt in earnings downgrades, and a weakening of micro-level supply-side disruptions. If only one condition is met, the market movement is more likely to表现为 (manifest as) a valuation repair or a阶段性反弹 (phase rebound). If two conditions begin to reverse, Hong Kong stocks would have a basis for repricing. If all three resonate, Hong Kong stocks could transition from being a discounted offshore asset back to a trend-following allocation asset. "Currently, only the valuation repair logic is初步显现 (initially appearing); the latter two are not yet clear. Therefore, the sustainability of the rebound仍需观察 (still needs to be observed)."

Chen Guo, Chief Strategist at East Money Securities, expressed the view that Hong Kong stocks are likely already in a bottoming zone, and at the very least, it is difficult for core new consumption and internet龙头公司 (leading companies) to decline further.

"A harsh reality is that we cannot use our understanding of fundamentals to fight against the滔天巨浪 (overwhelming tide) of liquidity. If we wait for the market structure of Hong Kong stocks to change—for instance, attractive companies listing in Hong Kong and entering the Hang Seng Tech Index in the future, and for the frenzy in South Korean and Japanese stock markets to end—then Hong Kong stocks will perform relatively better," said a public fund manager.