Hong Kong stocks slump to a 'bottom' as over HK$8.2 billion in southbound funds step in to buy the dip—will there be a catch-up rally ahead?

Today (June 10), Hong Kong stocks weakened further, with both the Hang Seng Index and Hang Seng Tech Index approaching their year-to-date lows.

At the close, the Hang Seng Index stood at 24,407.96, down 157.94 points or more than 0.6%.

The Hang Seng Tech Index closed at 4,724.79 points, down 44.82 points or 0.94%.

Yesterday, the semiconductor supply chain was the only bright spot in the market, but today saw virtually no market highlights, with previously strong sectors broadly entering a correction phase. However, among major stocks, Tencent and Meituan-W rose against the trend by 2.74% and 2.33%, respectively, offering investors a glimmer of hope for the market ahead.

On the news front, Tencent announced that it has entered into subscription agreements with U.S. dollar note managers to issue U.S. dollar-denominated notes with an aggregate principal amount of USD 2.45 billion under the program, and with renminbi note managers to issue RMB-denominated notes with an aggregate principal amount of RMB 15 billion under the same program. Regarding the use of proceeds from the bond offerings, the company stated that it currently intends to use the net proceeds from each issuance (including the proposed notes) for general corporate purposes. However, market analysts believe Tencent’s fundraising will likely be primarily allocated toward investments in artificial intelligence (AI).

Meituan rose more than 2% today. On the news front, Tabbit, Meituan’s AI-powered browser, is beginning to charge heavy users. The standard version of Tabbit will remain free permanently, while the professional version—targeted at users who frequently engage in conversational AI, image generation, and agent-based tasks—will be priced at RMB 9.9 per week.

Elsewhere in the market, tech and internet stocks were mixed: Lenovo fell over 9%, Xiaomi dropped more than 3%, and Alibaba declined over 2%, while NetEase and Kuaishou gained more than 3%, and Bilibili rose over 2%. Innovative drug-related stocks strengthened in the afternoon session, with Zai Lab climbing over 5%. Power equipment stocks led the declines, with Dongfang Electric falling over 7%. The optical communications sector pulled back, with Yangtze Optical Fibre and Cable dropping over 9%.

In terms of capital flows, southbound funds began bargain-hunting in Hong Kong stocks today. As of market close, southbound investors recorded net purchases exceeding HKD 8.2 billion in Hong Kong equities.

Outlook for the market ahead:

Dongwu Securities released its latest view, stating that Hong Kong stocks are currently in a balancing phase between external volatility and internal recovery, with the overall risk-reward ratio remaining reasonable. In the near term, overseas macro risks will dominate market sentiment, and the firm recommends dynamically monitoring data and events over the next two weeks, with particular focus on Federal Reserve commentary and the pace of AI adoption in U.S. equities.

Dongwu Securities believes the AI-driven tech rally has not yet peaked, and the current pullback represents normal volatility. The Federal Reserve’s monetary policy pivot remains unconfirmed, and markets have already fully priced in expectations of continued tightening. Strong U.S. corporate earnings provide solid support—this rally is not driven solely by AI; rather, it marks the first time in four years that all GICS (Global Industry Classification Standard) sectors have posted positive year-over-year growth collectively, distinguishing it fundamentally from past episodes like the dot-com bubble or the 'Nifty Fifty' rally, thanks to a more robust earnings foundation.

Regarding June market prospects, Dongwu Securities expects Hong Kong equities to advance amid volatility, with three key variables warranting close attention: developments in U.S.-Iran tensions, U.S. inflation data, and the new Federal Reserve Chair’s stance during their first policy meeting. Currently, foreign investors remain relatively cautious in pricing U.S. Treasuries. The brokerage anticipates the Fed will refrain from hiking rates abruptly in the near term; should the upcoming meeting convey a neutral or dovish signal, the 'Fed PUT'—the market perception that the Fed will intervene via rate cuts or liquidity injections to cushion sharp equity sell-offs—could be reactivated, opening a window for risk assets to rebound.

Dongwu Securities noted that Hong Kong equities currently offer compelling odds and present a catch-up opportunity. As the AI rally in U.S. markets spreads from hardware to software applications, Hong Kong stocks could see positive spillover effects. Additionally, some capital may rotate from A-shares into non-tech sectors, potentially driving short-term catch-up gains in consumer and property stocks. Markets have not yet priced in expectations for sequential improvement in EPS (earnings per share), and the brokerage forecasts full-year EPS growth for Hong Kong-listed companies of 5% to 6%, suggesting meaningful room for valuation repair.

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