Our strategy team has analyzed the conditions necessary for a sustained rebound in the Hong Kong stock market. Following our recent accurate prediction of a V-shaped recovery, we now examine the potential for continued upward movement from the perspectives of market sentiment, corporate earnings, capital flows, and historical patterns.
The recent two-day rally was primarily driven by a global risk-on environment, known as the TACO trade, and a positive market reaction to regulatory intervention. Specifically, the State Administration for Market Regulation's call to end aggressive competition in the food delivery sector boosted sentiment towards companies like Meituan, Alibaba, and JD.com. Concurrently, a temporary de-escalation in Middle East tensions contributed to the improved global risk appetite.
Looking ahead, while we are not pessimistic about the Hong Kong market, we maintain that a genuine reversal from the current bottom-range fluctuation requires clearer signals. Several key factors warrant attention: First, despite the recent gains, the Hong Kong market sentiment index remains in panic territory, suggesting room for further rebound based on our quantitative models. Second, historical data indicates that when the Hang Seng Index reclaims its annual moving average, short-term gains tend to continue with high probability. Third, while risks such as potential ground conflicts persist, the likelihood of a significant escalation in geopolitical tensions appears limited, with possibilities for de-escalation in the medium term. Fourth, the effectiveness of recent regulatory measures aimed at curbing excessive competition remains uncertain and requires further observation. Fifth, corporate earnings expectations for Hong Kong-listed companies still face downward revision pressure, which may ease after the current earnings season concludes. Sixth, southbound capital inflows have been relatively weak, reflecting a trading-oriented approach rather than strong conviction. A sustained, significant increase in medium to long-term capital from the mainland is likely needed to signal a true trend reversal.
Key indicators to monitor for a potential market reversal include: more definitive regulatory signals against excessive competition, stabilization of corporate earnings forecasts, the impact of upcoming AI model releases on tech leader confidence, potential upside surprises in Chinese macroeconomic data, and developments in international negotiations.
Investors should remain aware of risks, including a worsening geopolitical situation, a sharp spike in global oil prices, and weaker-than-expected Chinese macroeconomic performance.