Mid-Year Review | Hong Kong stock index futures moved from spring volatility to a deep mid-year correction—how should investors position for long and short opportunities in the second half?

In the first half of 2026, the H-shares index futures market traced a trajectory marked by an initial rally followed by a pullback, with significant structural divergence. For investors holding long positions in Hang Seng Index futures or heavily invested in traditional tech and internet stocks, this period posed a serious test of conviction. However, for capital betting on AI large-model-related equities, it proved to be a rare bonanza.

Hong Kong equities in H1 2026 exhibited a clear four-phase market pattern. This article provides a comprehensive review of the six-month market performance from the perspectives of both spot market participants and index futures traders, and breaks down the three key variables that will shape the HSI in the second half. How should investors position themselves across the three types of index futures for long and short strategies?

I. First-Half 2026 Overview of the Hong Kong Market: Extreme Sector Divergence

As of the close on June 30, $Hang Seng Index (800000.HK)$ closed at 22,881 points, marking a significant decline year-to-date; $Hang Seng TECH Index (800700.HK)$ closed at 4,472 points, posting a loss of nearly 20% in the first half of the year.

January’s Spring Rally: Bullish Sentiment Rises, Index Futures Traded Primarily on Wave-Based Long Positions

At the start of the year, markets broadly anticipated the Federal Reserve would begin cutting rates in the first half, while expectations for domestic pro-growth policies intensified, prompting a temporary return of foreign capital to Hong Kong equities, $Hang Seng Index (800000.HK)$ It briefly touched an intraday high of 28,056 points—the highest level this year—while the Hang Seng Tech Index rebounded in tandem.

Market sentiment turned strongly bullish. Monthly turnover in the three major stock index futures rose moderately, with investors primarily adopting short-term long swing trading strategies. Market volatility remained low, index futures traded at a slight premium, and trading difficulty was minimal. At the time, capital flows broadly favored a recovery in internet stocks, $HTI Futures (JUL6) (HTImain.HK)$ making them the core target for bullish positions in the market.

February to mid-May: Range-bound consolidation amid fading hopes—cooling rate cut expectations and rising demand for short-side hedging

U.S. inflation data continued to exceed market expectations, prompting overseas institutions to repeatedly downgrade their forecasts for the number of rate cuts this year, $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ The U.S. dollar strengthened persistently, weighing on Hong Kong’s long-duration growth assets. Weakness in internet advertising revenue and intensifying price wars in the new energy vehicle sector pushed the index into a prolonged downtrend.

During this phase, the premiums and discounts of the three major index futures frequently flipped. Investors holding tech and internet stocks in their spot portfolios began opening $HTI Futures (JUL6) (HTImain.HK)$ short positions to hedge against drawdowns, with hedging activity gradually replacing short-term speculative trades as the dominant driver of market turnover.

Mid-May to end-June: Sharp selloff—Fed sent hawkish signals, triggering a surge in short positions in Hang Seng Tech Index futures

After Waller took over in May, markets increasingly priced in the likelihood of no rate cuts this year, leading foreign investors to sharply reduce holdings of heavyweight Hong Kong tech stocks, $Hang Seng TECH Index (800700.HK)$ Markets plunged sharply, with panic sentiment spreading. On May 26—the first trading day following new regulations targeting illegal cross-border securities activities—Hang Seng Tech Index futures saw their highest single-day trading volume in six months, as a wave of defensive short positions entered the market to hedge against mounting losses.

High-dividend sectors such as financials and energy proved relatively resilient, with Hang Seng Index futures exhibiting less volatility than Hang Seng Tech futures. Institutional analysts noted thatthe recent correction in the Hang Seng Tech Index has been particularly severe, primarily because the index has relatively low exposure to AI-related companies,making it difficult to fully capture the global surge in AI-related capital expenditures. Traditional tech giants are facing intensified advertising competition and market saturation, leading to downward revisions in earnings expectations, while pressure on new energy vehicle sales has further weighed on related sectors.

The most distinctive feature of the market during this period has been extreme divergence among individual stocks and sectors, effectively splitting market dynamics into two distinct narratives:AI-focused newcomers have staged an independent bull rally, $Z.AI (02513.HK)$ with some rising nearly 20-fold year-to-date and surpassing HK$1 trillion in market capitalization intraday in June; in stark contrast, established heavyweights within the Hang Seng Tech Index have collectively slumped, $TENCENT (00700.HK)$ 、 $BABA-W (09988.HK)$ 、 $MEITUAN-W (03690.HK)$ 、 $KUAISHOU-W (01024.HK)$ with year-to-date declines ranging from 20% to 30%. Soaring R&D investments in AI have squeezed profitability at major internet platforms, directly dragging down the index’s performance for the year and continuously fueling $HTI Futures (JUL6) (HTImain.HK)$ demand for hedging throughout the year.

Valuation recovery at end-June: Across-the-board rebounds occurred on June 29, with futures-spot basis rapidly converging.

After several consecutive months of deep correction, Hong Kong stocks fell to levels close to the lows seen since last year’s tariff announcement. On June 29, the market staged a strong recovery, $Hang Seng Index (800000.HK)$ rising 1.56% in a single day, $Hang Seng TECH Index (800700.HK)$ surging 3.23%, with Hong Kong stocks $Innovative drug (LIST23675.HK)$ concepts jumping nearly 7% in a single day.

On the news front, $Baidu (BIDU.US)$ Rumors that Kunlun Chip, a subsidiary, plans to go public boosted tech and internet stocks, while the National Healthcare Security Administration’s release of a list showing a significantly higher pass rate in formal reviews lifted innovative drug-related stocks. Capital is front-running anticipated domestic healthcare and consumption stimulus policies expected in the second half of the year, prompting short-term bullish funds to return. The discounts on the three major index futures quickly narrowed and briefly turned into slight premiums on some trading days, signaling a revival in short-term swing trading.

II. Outlook for the Second Half: Market Consolidation Amid Volatility; Three Key Variables Will Dictate Market Direction

At this mid-year juncture, Hong Kong equities are unlikely to see a sustained rally in the near term and will likely remain range-bound as they consolidate near the bottom. However, valuations have already retreated into an attractive zone. New market drivers will require multiple catalysts to align. Meanwhile, large-scale lock-up expirations of AI-related new listings in July will introduce short-term volatility, potentially driving up the volatility of Hang Seng Tech Index futures directly.

Three critical variables to monitor in the second half:

Macro perspective: Awaiting restoration of Fed rate-cut expectations

Zhang Qisi, fund manager of CSOP Hang Seng Tech ETF, noted that the key external driver behind the recent Hang Seng Tech decline was 'the Federal Reserve maintaining high interest rates, upward revisions in the dot plot, and the collapse of expectations for a rate cut within the year,' which under Hong Kong’s linked exchange rate system, 'directly suppressed long-duration growth stocks through elevated discount rates.'

The Hang Seng Tech Index has already seen a relatively substantial decline and is now at an attractive level, with its current PE-TTM standing at just 21.7x—placing it in a zone characterized by both valuation lows and sentiment troughs. Market pricing of the hawkish Fed path is already quite full; should inflation data show marginal easing and rate hike expectations be revised downward, a drop in discount rates would directly benefit Hong Kong equity liquidity and valuations of growth stocks.

Investors should closely monitor U.S. inflation data, Federal Reserve meetings, and developments in U.S.-China relations.

Stabilization of traditional heavyweight stocks is key to the Hang Seng Index finding a bottom.

$TENCENT (00700.HK)$ 、 $BABA-W (09988.HK)$ When major constituents such as new energy vehicle stocks stabilize and rebound will directly determine the direction of the Hang Seng Index. These companies already offer compelling valuations. If their interim earnings reports demonstrate tangible progress in AI initiatives, improvement in advertising businesses, or successful overseas expansion, they could provide strong support for the broader market. For the new energy vehicle sector, investors should watch domestic subsidy policies and export trends.

Structural Theme: The AI Concept Faces a Reality Check

AI remains the most certain investment theme for the second half of the year, but the focus will shift from speculative hype to earnings validation. $Z.AI (02513.HK)$ 、 $MINIMAX-W (00100.HK)$ Several companies face large-scale share lock-up expirations in early July, which may create short-term supply pressure and cause a sharp spike in index futures volatility during that period. This presents both a risk and a potential entry window—if fundamentals deliver strong results post-expiration, it could trigger a new round of re-rating.

Over the medium to long term, leading internet firms have deeply invested in AI foundation models, cloud computing, and smart hardware, providing ample long-term growth momentum. If these companies can deliver more concrete AI-related earnings validation in the second half of the year, it may drive valuation recovery.

V. Sector-Specific Strategies for Hong Kong Equity Index Futures in the Second Half

1. Hang Seng Tech Index Futures: Play for Elasticity

– Spot hedging strategy

Investors holding core positions in Hong Kong-listed tech stocks such as Tencent, Alibaba, and Meituan may consider gradually establishing short positions in far-month index futures after a rapid rally to lock in profits. During periods of heightened risk—such as the July share lock-up expiration window, a hawkish Federal Reserve stance, or earnings-related downside risks—investors could also use short-term index futures shorts to hedge against potential drawdowns. Avoid full-position directional bets at all costs.

– Trend-following swing strategy

Key long-entry windows: Ahead of Federal Reserve policy meetings and internet companies’ earnings announcements, investors may consider accumulating long positions on market dips. However, if U.S. Treasury yields rebound sharply or AI commercialization falls short of expectations, take quick profits and exit short-term positions.

2. Hang Seng Index Futures: Balanced core position for both offense and defense

Suitable for investors with balanced portfolios combining high-dividend and technology stocks, serving as a medium- to long-term hedging tool:

– Core-position hedging:For those heavily weighted in high-dividend blue chips such as banks and energy stocks, holding a modest long position in far-month Hang Seng Index futures can capture broad market recovery momentum.

– Range-bound arbitrage:Gradually establish long positions when the index approaches support levels and short positions near resistance levels, executing swing trades within the range.

3. Hang Seng China Enterprises Index Futures: Positioning for a Rebound

The Hang Seng China Enterprises Index is fundamentally tied to the recovery of domestic consumption, real estate, and industrial sectors. Investors holding ADRs or onshore equities linked to these sectors may consider this instrument.

– Watch for policy-driven catalysts:Go long on the China Enterprises Index futures if China introduces stimulus policies targeting consumption or real estate.

– Hedging strategy:Investors holding domestic-demand-linked Chinese ADRs can use China Enterprises Index futures to smooth portfolio volatility.

Summary

The first half of the year saw Hong Kong index futures markets undergo a correction of legacy weightings and a repricing of new assets. The key for the second half lies in whether AI sector leaders can pass the test posed by share lock-up expirations and whether Fed rate-cut expectations can marginally recover from extreme pessimism.

For investors, staying attuned to structural opportunities in the AI sector and effectively leveraging the distinct characteristics of the three types of index futures are far more important than simply betting on market direction.

Fellow investors, at this mid-year juncture, what’s your take on the Hong Kong stock market’s script for the second half?

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Disclaimer

The above information does not represent Futu's views in any way and is provided for reference only; it does not constitute any investment advice. Futures trading involves substantial risk of loss, which can be very significant—in certain circumstances, losses may exceed the initial margin deposited. Market conditions may prevent stop-loss, limit orders, or other contingency instructions from being executed. Investors should thoroughly research and understand futures contracts before trading and carefully consider whether such transactions are suitable given their financial situation and investment objectives. Futures trading entails high risk and may not be appropriate for all investors. Before engaging in any futures trading strategy, investors should fully understand the associated risks and assess their own risk tolerance.

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