Hong Kong's benchmark Hang Seng Index commenced the trading session with a slight decline of 0.07%, while the Hang Seng Tech Index opened flat.
The semiconductor sector displayed strength, with INNOSCIENCE (HKEX: 02577) shares advancing more than 2%. Other chip-related stocks, including GigaDevice and SMIC, also saw gains exceeding 1%.
Regarding the market outlook, Soochow Securities suggests that Hong Kong equities currently offer attractive risk-reward ratios, presenting a potential window for catch-up gains. The firm notes that the U.S. stock market's AI-driven rally is broadening from hardware to software applications, a trend that could resonate positively in Hong Kong. Additionally, some capital is expected to rotate from technology sectors into non-tech areas, such as consumer and property stocks, following patterns seen in the A-share market, which could lead to periodic rebounds. The market has not yet priced in expectations for sequential improvements in earnings per share (EPS), with projections indicating a potential 5-6% full-year EPS growth for Hong Kong stocks, offering room for valuation recovery.
Huatai Securities observes that while the fundamental picture for Hong Kong stocks has not changed substantially, market panic has reached extreme levels not seen in nearly two years. The firm points out that the derivatives component of market sentiment indicators has hit an extreme low, which may signal that short-selling pressure has been largely exhausted. This extreme pessimism itself provides a cushion of safety, and there remains scope to trade on potential short-covering rallies amid oversold conditions. For near-term positioning, Huatai recommends focusing on heavily shorted, oversold stocks with stabilizing profit outlooks, such as discretionary retail and select media names, alongside defensive high-dividend plays like banks. The firm suggests that the AI hardware chain currently offers limited value for money and advises reducing exposure based on profit-taking levels, with plans to re-enter after market volatility subsides following the U.S. earnings season in July. For a medium-term view, a balanced portfolio is advised, incorporating sectors with improving fundamentals like semiconductors, new energy, and machinery, alongside undervalued consumer staples and services companies with recovering earnings expectations.
Guoyuan International highlights that geopolitical tensions involving Iran have pushed oil prices higher, coupled with resilient U.S. demand, leading to a notable rebound in inflation since the second quarter. This has prompted a significant shift in market expectations for U.S. Federal Reserve policy this year. Current uncertainties remain elevated: while there is potential for tighter monetary policy, interest rate hikes are constrained by the scale of U.S. national debt. The direction of potential new fiscal policies is not yet clear, and major initial public offerings like SpaceX could divert capital away from international markets. Consequently, there is a high probability of valuation contraction in the near term.