According to a research report, the Hong Kong stock market has largely exhausted its negative factors and is positioned at a structural low characterized by underlying support and a need for positive catalysts. Short-term upside is seen as dependent on two key catalysts: the revaluation of AI-related businesses and marginal improvements in corporate earnings, with the mid-year results season in August being a critical verification point.
The report suggests focusing on three main investment themes. Firstly, technology stocks, particularly leading internet companies, are currently valued with pessimistic expectations already priced in. The user access and cost advantages of their AI businesses are not fully valued, presenting significant room for re-rating. Secondly, the high-dividend-yield strategy offers prominent defensive value as a core portfolio holding. Supported by sustained inflows from long-term capital such as insurance funds, the stable cash flows and dividend payouts of yield assets provide important downside protection. Thirdly, non-ferrous metals are expected to maintain price resilience, benefiting from geopolitical tensions and resource security strategies.
The report notes that the recent persistent weakness in the Hong Kong market stems from a negative feedback loop of downward earnings revisions and capital outflows. Profit expectations for the Hang Seng Index and the Hang Seng TECH Index have been consistently revised down since May, creating significant pressure. A key factor has been the shift of southbound capital flows to net outflows, with both retail and institutional investors reducing their positions, thereby intensifying the downward pressure.
In the short term, the market is viewed as nearing the peak of pessimism, with negative news largely exhausted. The core catalysts for an upward move are seen as twofold. First is the value re-rating of AI businesses. The market currently values leading internet companies as mature-stage businesses, largely ignoring the AI narrative and overlooking their cost advantages and user access value in the domestic market, indicating substantial revaluation potential. Second is marginal improvement in earnings. As losses from non-core businesses narrow, fundamental improvements could drive a rapid valuation correction.
Looking at the medium to long term, the report states that as the economy stabilizes and industrial policy support continues, corporate earnings in Hong Kong are expected to gradually recover. Sustained investment in technology will translate into long-term growth drivers. Coupled with the market's status as a significant global valuation discount, there is potential for a sustained upward trend, with the market's trajectory possibly exhibiting characteristics of a slow bull market.