Hong Kong stocks enter a valuation repair window as public offering funds increase their deployment efforts.

Securities Times reporter An Zhongwen

After nearly 6 months of continuous adjustment, the overall valuation of the Hong Kong stock market has kept falling. Against this backdrop, public funds have started to step up their efforts to position themselves in the Hong Kong market. Many funds have begun widely allocating to a range of assets spanning Hong Kong tech, internet, and consumer sectors.

On July 8, the Hong Kong stock market saw a sharp rebound. The Hang Seng Index rose 2.99% on the day, while the Hang Seng Tech Index surged as much as 4.97%. Previously, due to the narrative shift toward AI-driven replacement, SaaS, mobile internet, and software companies became the leading forces. Several public fund heavy holdings delivered standout gains.

Among them, Kingdee International Software, heavily held by the China-Europe Fund Electronic Information Industry Fund, jumped 14.98% on the day; Meitu, held by the GF Fund Information Industry Fund, rose about 8%; NetEase Cloud Music, heavily held by the Wealth Fund Minyuanyu沪港深 Fund, climbed 8.34%; Mingyuan Cloud, heavily held by the Great Wall Longest R&D Return Fund, rose nearly 9%. In addition, shares held by funds such as Alibaba, SenseTime, Kuaishou, Xiaomi Group, and G-Resources Technology all rose by more than 6% on the day, as Hong Kong assets collectively warmed up.

The recovery in Hong Kong stocks is not only confined to the tech-and-internet track. Compared with the A-share market’s preference for a technology-growth style, public funds allocating to Hong Kong stocks place more emphasis on cash flows that are steady and sustainable. As a result, consumer stocks in Hong Kong still show elasticity in the rebound after the adjustment, no weaker than tech assets. Previously, driven by the “crowding out” effect from A-share tech rallies, the prices of high-quality consumer stocks in Hong Kong continued to trend downward. Recently, several public funds have started to take counter-cyclical positions: before the recent market rebound, they proactively entered the consumer sector via southbound capital.

Securities Times reporter noted that Huaxia Fund has recently moved south to stake out consumer stocks in Hong Kong. Data disclosed by the Hong Kong Exchanges and Clearing reveal that Huaxia Fund targeted the “infant formula and health products” demand-driven segment. On June 15, at an average price of HK$11.322, it increased its holdings of H&H International Holdings (H&H Group). H&H International Holdings focuses on premium infant formula and nutrition health products, and is a leading brand with a relatively high market share in this segment. It has also achieved notable breakthroughs in its overseas expansion and international business. After the increase in holdings, Huaxia Fund held a total of 32.43368 million shares, with its stake ratio rising from 4.95% to 5.02%, reaching the Hong Kong stock threshold for triggering a “takeover/reacquisition by stake increase.”

It is worth noting that after completing the stake increase on June 15, from June 16 to June 30, H&H International Holdings’ share price fell to HK$10.10. Based on the average holding cost of HK$11.322, this counter-cyclical positioning incurred a paper loss of nearly 10% within two weeks. However, market sentiment quickly reversed. Starting July 2, H&H International Holdings began a strong rebound. By the close on July 8, the stock price was HK$14.66. In just three weeks, Huaxia Fund’s stake-increase position shifted from a 10% paper loss to a 35% paper gain, vividly reflecting the counter-cyclical investment logic of leading public funds sticking to the idea of “opportunities that emerge when prices fall.”

As for forecasts on the future direction of the Hong Kong stock market, several public funds believe that mid-July will bring the mid-year earnings disclosure window for Hong Kong stocks. The extent to which reported results are realized will become the core criterion for subsequent stock selection. This valuation-repair rally may be difficult to sustain as a one-way uptrend; instead, funds will gradually screen for stocks with strong earnings realization ability and solid fundamentals.

An analysis by Hua’an Fund suggests that during the market style transition, there is a need for institutional capital to increase allocations to Hong Kong stocks. The allocation value of Hong Kong-listed state-owned enterprise “dividend/earnings yield” assets continues to stand out. Currently, the macroeconomy remains on a moderately recovering trajectory, and corporate earnings bottoms are gradually stabilizing. High-dividend assets can provide stable cash dividend returns while also allowing investors to share in the rebound dividends from cyclical industries. At this stage, more and more funds are gradually shifting toward undervalued, high-dividend “bonus” targets, and the overall market investment style is entering a phase of rebalancing.

“As the mid-year earnings disclosure window for Hong Kong stocks gradually opens, earnings verification will dominate market performance. Hong Kong Stock Connect central SOE dividend targets combine an estimated valuation safety cushion with earnings stability, making them the preferred direction for incremental funds right now.” Hua’an Fund believes that in a market environment marked by oscillations and volatility, dividend assets relying on stable operating cash flows and ongoing distributions can meet investors’ demand for investment certainty and help hedge risks stemming from market fluctuations.

Southern Fund also believes that early July is a key turning point for the Hong Kong stock market. Previously, due to the high heat of A-share hard-tech themes, market funds were highly concentrated in A-shares, continuously siphoning away positions that would have otherwise gone to Hong Kong. Now, based on Hong Kong internet sectors’ extremely high sensitivity to changes in liquidity, the current market logic is supported by multiple positive factors: first, A-share AI hardware segments have seen concentrated pullbacks; profits taken by high-level funds have exited, and they have turned to allocate to Hong Kong assets whose valuations are at the bottom; second, the pace of commercialization of the AI industry continues to accelerate. Domestic leading companies have rolled out a new generation of large models. Major payment platforms have launched AI open APIs for merchants. AI subsidiaries of short-video platforms have completed the first round of fundraising. The industry main line is gradually extending from hardware manufacturing toward the application layer; third, Hong Kong internet platforms hold vast user scenarios, data, and a complete commercial ecosystem—key carriers for AI technology landing, monetization, and commercialization. The industry’s valuation logic is shifting from traditional valuation based on traffic scale to a reassessment based on AI commercialization value.

(Editor: Xu Nan Nan)

Keywords: