Hong Kong stocks experienced a rollercoaster in the first quarter of this year: Hengke plunged 15.7%, approaching the "tariff bottom," while southbound funds of 220 billion HKD bought the dip against the trend.

Ask AI · What are the points of divergence among institutions regarding the second-quarter recovery trend of Hong Kong stocks?

Everyday Economic News reporter: Zeng Zijian · Edited by: Yuan Dong

In the first quarter of 2026, Hong Kong stocks experienced a volatile pattern of initial gains followed by declines under multiple pressures such as fluctuating global liquidity expectations, geopolitical risks, and differentiated performance of tech stocks. The Hang Seng Index fell a total of 3.29% in the quarter, while the Hang Seng Tech Index (HSI Tech) plummeted 15.70%, ranking at the bottom among major global stock indices.

However, amid the overall market adjustment, southbound funds net bought over HKD 220 billion against the trend, becoming an important source of incremental capital for Hong Kong stocks. Institutional analysis suggests that the current correction in Hong Kong stocks is mainly driven by external shocks. If external risks do not further worsen, the market is expected to see a recovery driven by the resonance of unlocking restrictions, earnings verification, and capital inflows.

Market performance: Tech stocks lead the decline, HSI Tech approaches the “tariff bottom”

In the first quarter of 2026, the three major Hong Kong stock indices showed clear divergence. As of March 31, the Hang Seng Index closed at 24,788.14 points, down 3.29% for the quarter; the Hang Seng China Enterprises Index fell 4.73%; and the Hang Seng Tech Index performed the weakest, with a cumulative decline of 15.70%.

Looking at the monthly rhythm, Hong Kong stocks shifted from a “spring surge” to a “deep correction.” In January, driven by recovering mainland economic data, expectations of the Spring Festival consumption peak, and continuous inflows of southbound funds, the Hang Seng Index rose nearly 7% in the month, led by tech and consumer stocks. However, from February onwards, signals of cooling Fed rate cut expectations and subdued trading during the Spring Festival holiday caused the market to enter a consolidation phase. In March, with the outbreak of US-Iran military conflicts, international oil prices breaking above USD 100 per barrel, and the Fed chair nominee Kevin W. Warsh adopting a hawkish stance, risk aversion surged sharply, leading to significant declines across the three major indices. At the end of March, the market correction intensified due to the impact of annual report earnings from heavyweight stocks.

Notably, since touching a high of 6,715.46 points in October 2025, the Hang Seng Tech Index has entered a sustained downtrend, with a total decline exceeding 30%. On March 30, it briefly fell to 4,619.67 points, approaching the “tariff bottom” of 4,296 points recorded on April 9, 2025.

Compared with major global markets, Hong Kong stocks underperformed significantly in Q1. During the same period, the Nasdaq fell 7.11%, the S&P 500 declined 4.63%, the Nikkei 225 rose 1.44%, and the KOSPI gained over 19%. The deep correction of Hong Kong stocks, especially the Hang Seng Tech Index, highlights its high sensitivity as an offshore market to global liquidity and geopolitical risks.

Deep correction: four pressures converging

Regarding the sharp adjustment in Hong Kong stocks, especially in the tech sector, several authoritative brokerages have conducted in-depth analyses, generally attributing it to the resonance of multiple adverse factors.

First, the reversal of the Fed’s rate cut expectations and tightening global liquidity.

Dongwu Securities research report pointed out that high oil prices delayed the Fed’s shift, putting pressure on Hong Kong stocks. The nomination of Kevin W. Warsh, seen as hawkish and supportive of balance sheet reduction, as the next Fed chair, combined with unexpectedly high US PPI data, has significantly heightened concerns about global inflation or stagflation. As an offshore market, Hong Kong stocks’ capital flows are highly linked to Fed monetary policy, making them most sensitive to changes in risk-free rates.

Second, Middle East geopolitical conflicts pushing up oil prices and intensifying inflation worries. GF Securities noted that the core contradiction in this round of global market volatility lies in whether the transit efficiency of the Strait of Hormuz, a critical global energy and industrial raw material shipping channel, will continue to be impaired. After the outbreak of US-Iran military conflicts in late February, Brent crude oil quickly stabilized above USD 100 per barrel. The impact of rising energy prices has shifted from an initial price shock to a supply-side disruption. The sustained high oil price at USD 100 per barrel anchors higher global inflation expectations, which not only constrains the Fed’s rate cut window but also limits the Hong Kong Monetary Authority’s room to adjust monetary policy.

Third, persistent foreign capital outflows, with southbound funds serving as a key support. CICC research shows that institutional investors account for up to 80% of the Hong Kong stock market, with over 60% being foreign capital. Under the “Warsh trade” sentiment, foreign investors withdrew from the tech sector, intensifying the index correction. In contrast, southbound funds accumulated net inflows of over HKD 220 billion in Q1, continuously increasing their holdings in Hong Kong stocks and becoming a crucial source of market liquidity.

Additionally, Q1 coincided with the earnings season, during which many tech giants reported 2025 results that failed to meet market expectations. Alibaba’s non-GAAP net profit plunged 67% year-on-year, with operating profit down 74%, far worse than pessimistic forecasts. Tencent’s earnings report triggered market dissatisfaction over its reduced share buyback scale, leading to a drop in its stock price.

Shenwan Hongyuan analysis pointed out that the over-expectation of AI capital expenditure by tech giants has raised doubts about their cash flow and investment returns. Meanwhile, the AI subsidy wars among domestic internet giants like Meituan, Alibaba, and ByteDance, involving price cuts, are essentially a redistribution of profits within the stockpile market rather than expanding new ones. This has led to a significant downward revision of profit growth expectations.

Stock differentiation: Top five winners and losers

Despite the overall market weakness, Q1 still saw notable structural divergence in Hong Kong stocks. Data shows that in the first quarter, 52 stocks gained over 100%, with 10 stocks soaring over 400%. The biggest gainer was Fengsheng Holdings (HK00607), with an increase of 820%. However, most of these high-flyers are micro-cap stocks with low liquidity, offering limited reference value. Excluding recent IPOs, and focusing on major constituents, Stock Connect targets, and companies with market caps over HKD 1.06B, the top five outperformers and underperformers in Q1 are as follows:

Top 5 winners (as of March 31, 2026):

1. Longi Fiber Optic Cables (HK06869): +253.97% in Q1.

   The company is a global leader in fiber preform rods, optical fibers, cables, and integrated solutions. Haitong International notes that the company has maintained the top global market share for nine consecutive years, with vertical integration of optical preform rods providing strong profit elasticity. The company’s optical preform rods account for about 70% of industry profits; its self-sufficiency rate for rods is 100% (the only one worldwide), with three parallel processes enabling flexible switching to high-end products.

2. Jiaxin International Resources (HK03858): +122.48% in Q1.

   A tungsten mining company based in Kazakhstan, focusing on the development of the Bakutag tungsten mine. According to Frost & Sullivan, as of the end of 2025, this project is the world’s largest open-pit tungsten deposit in terms of WO3 resources. The company turned profitable in 2025, with revenue of HKD 3.86B, gross profit of HKD 620 million (49% margin), and net profit of HKD 314 million, reversing a loss of HKD 177 million in 2024. On March 9, it was included in the Stock Connect list.

3. COSCO Shipping Energy (HK01138): +86.77% in Q1.

   Driven by Middle East conflicts, international oil prices remained high, boosting demand for oil and gas transportation. As a leading domestic oil transportation company, COSCO Shipping Energy’s stock price surged over 100% at one point in Q1, leading the energy sector. CICC research indicates that long-term supply tightening may permanently raise the shipping rate ceiling, and the shift in supply-demand dynamics could rewrite the fundamental investment logic of the tanker industry, with long-term capital expenditure in the old economy supporting higher shipping rates.

4. Guofu Quantum (HK00290): +82.77% in Q1.

   A cross-border fintech investment platform based in Hong Kong, backed by the Greater Bay Area and targeting international markets. Its current business includes investment banking, securities brokerage, asset management, margin financing, immigration investment, debt and equity investments. On March 9, it was added to the Stock Connect list.

5. Wanguo Gold International (HK03939): +76.67% in Q1.

Top 5 losers (as of March 31, 2026):

1. Tencent Music - SW (HK01698): -46.75% in Q1.

   Decline reasons: earnings below expectations, impact from short-video platform competition, with monthly active users down 5% YoY in Q4.

2. Yaojie Ankang-B (HK02617): -42% in Q1.

   Decline reasons: after a speculative frenzy in September last year, the stock suffered a sharp retreat; in January, the company raised about HKD 190 million through a placement.

3. Xiaomi Group-W (HK01810): down over 41% in Q1.

   Decline reasons: before the launch of the new SU7 model, the stock price had already risen in anticipation; funds sold off heavily upon positive news.

4. Jiufang Zhitu Holdings (HK09636): down 41%.

   Decline reasons: its subsidiary Jiufang Zhitu engaged in misconduct, including misleading marketing, false live-streaming content, inadequate compliance and risk controls, and employees providing investment advice without registration, violating regulations.

5. Meitu Company (HK01357): down 38.71%.

   Decline reasons: 2025 financials show revenue increased but profits did not; revenue was HKD 3.859 billion (+28.79%), but net profit fell 27.61% to HKD 583 million.

Market outlook: Divergent views among institutions, focusing on three main investment themes

Regarding the second quarter and full-year outlook for Hong Kong stocks, major institutions hold differing opinions, but generally agree that valuations are now attractive.

CITIC Securities believes the bull market in Hong Kong stocks has not ended; the recent pullback is a typical mid-cycle correction rather than a trend reversal, and now is a good window for active long positions.

CICC suggests liquidity needs to improve, but there are gradually emerging opportunities for phased positioning in the Hang Seng Tech Index. Galaxy Securities notes that if a prolonged US-Iran conflict develops, Hong Kong stocks will go through three stages: “short-term sentiment shock → medium-term fundamentals transmission → long-term structural divergence.” Despite macro challenges like low growth, high interest rates, and sticky inflation, the valuation advantage, high dividend yields, and southbound capital support give Hong Kong stocks relative resilience among non-US assets.

Three main investment themes to focus on:

1. Cyclical sectors: Global manufacturing recovery combined with AI capital expenditure expansion is reshaping supply-demand dynamics. Key resources include traditional energy (oil, natural gas, coal), precious metals like gold, and critical metals related to military and high-tech industries.

2. Valuation-driven financial and consumer discretionary sectors: With moderate policy easing and supply-demand optimization, profit recovery paths for manufacturing and resource sectors are clearer, supported by rising prices.

3. Technology sector: Currently, global capital favors upstream hardware, and the trend of “de-softening” to “hardening” in HALO trading is expected to continue into the first half of the year.

Everbright Securities’ research team believes that the recent irrational correction of the Hang Seng Tech Index has sufficiently released short-term sentiment risks. The sector now exhibits four bottoming features: oversold conditions, valuation advantage, contrarian capital inflows, improving industry fundamentals, and imminent share buybacks. Sector support is clear, and valuation attractiveness has improved significantly. Investors should avoid short-term panic, rationally allocate to high-quality assets undervalued due to market sentiment, and adopt a phased, long-term holding strategy focusing on core targets.

Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before acting. Use at your own risk.

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