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Tengsi | Executive Order 13936 terminated! Has the six-year geopolitical shackle weighing on the Hang Seng Index collapsed abruptly?

On July 17, 2026, the U.S. officially confirmed to China that the national emergency concerning Hong Kong would not be extended after its expiration, thereby terminating Executive Order 13936 signed by Trump on July 14, 2020.

Executive Order 13936 effectively removed Hong Kong from the offshore U.S. dollar system's"special treatment list"and authorized OFAC sanctions and invoked IEEPA to restrict Hong Kong-related financial assets.

This is not panic selling driven by sentiment, but rather a mandatory compliance-driven unwinding of existing positions—federal employee retirement funds, state public pension funds, sovereign wealth funds, and compliance departments at major asset managers and investment banks have largely classified mainland Chinese companies listed in Hong Kong, Hang Seng Tech Index constituents, and certain Hong Kong-based financial institutions into"high-risk asset pools", lowering allocation caps, applying geopolitical risk discounts, and restricting new capital inflows.

So the termination of Executive Order No. 13936 is"all sanctions lifted"Can I get in at 29.8?

The Hong Kong Autonomy Act and the Hong Kong Human Rights and Democracy Act remain in effect, and export control lists as well as OFAC sanctions targeting specific individuals and entities have not been simultaneously rescinded.

However, it removes the legal basis and policy direction within U.S. financial institutions' risk management frameworks that had justified discriminatory risk pricing on Hong Kong-listed stocks.

Financial markets fundamentally price based on"the direction of marginal change"—when the probability of additional downside pressure shifts from"persistently present"to"approaching zero", the risk premium restructuring has gained structural directional support. This isinstitutional bullish catalyst, not a sentiment-driven impulse.

What can be repaired, and what cannot?

Reader’s note: The following is linear speculation and does not constitute investment advice!!

The aggregate discount that has weighed on Hong Kong equities over the past six years can be broken down into three layers.

The first layer is a pure geopolitical policy discount, driven jointly by mandatory risk control adjustments and sanctions concerns under Executive Order 13936, directly tied to the executive order and thus the most repairable.

The second layer is an offshore U.S. dollar liquidity discount, caused by the Federal Reserve’s tightening cycle draining offshore dollar liquidity; its repair depends on the Fed’s pace of rate cuts and the direction of the U.S. Dollar Index.

The third layer is a fundamental discount, formed by the confluence of domestic platform regulatory cycles, corporate earnings volatility, and the pace at which AI-related narratives materialize; its repair hinges on earnings validation and stabilization of industrial policy expectations.

The termination of the executive order directly offsets the first layer.

In the near term, a small portion of the pure geopolitical discount has already narrowed due to improved risk appetite, corresponding to an 8%+ price recovery;

In the medium term, U.S. institutional compliance departments initiate revisions to risk control rules and internal investment committees reassess the classification of Hong Kong equity assets, leading to a further 12%+ reduction in the geopolitical discount;

In the long term, the geopolitical discount is largely eliminated, and pricing dynamics shift from"discount convergence"to"earnings validation".。

Key constraints: risk management system upgrades at large U.S. asset managers, revisions to Investment Policy Statements (IPS), approvals by fiduciary committees, and internal legal and compliance reviews.

Structural tailwinds exist but are subject to"implementation lags".Trillions in capital cannot flow in immediately.

What’s the data on foreign capital returning?

$Morgan Stanley (MS.US)$ Refers to: MSCI Emerging Markets Benchmark Index$iShares MSCI Emerging Markets ETF (EEM.US)$ In it, China’s weight is 29%, while global investors’ actual allocation is only about 26.6%. The 2.4 percentage point gap represents the largest underweight gap in recorded history. The logic of passive funds converging toward the benchmark alone provides a significant quantitative foundation.

$Goldman Sachs (GS.US)$ Further estimates suggest that Hong Kong-listed stocks could absorb approximately USD 20–30 billion of incremental long-term global capital throughout 2026.

However, foreign capital must be analyzed by breaking it into two categories—this is key.

Stable foreign capital (sovereign wealth funds, pension funds, large institutional asset managers) has long decision-making cycles and is highly sensitive to institutional variables; its return trajectory is“slow but steady.”。

Agile foreign capital (hedge funds, quant strategies, swing traders) has short decision-making cycles and moves in and out quickly; it often experiences temporary net outflows early on due to profit-taking after news events.

$Guosen (002736.SZ)$ Reports indicate that in the first week following the announcement of the executive order termination, agile foreign capital flowed out by HKD 11.3 billion, while stable foreign capital still recorded a net inflow of HKD 100 million.

According to SPDB International, passive foreign capital recorded a strong net inflow of USD 2.12 billion in the first week of 2026, demonstrating that passively allocated capital responds most swiftly and directly to institutional variables.

A possible sector ranking based on recovery elasticity

One logical approach to ranking by recovery elasticity is"Who has been hit the hardest, who has the deepest geopolitical discount priced in, and who stands to gain the greatest marginal recovery elasticity"。

Below is one possible ranking derived from linear extrapolation.

The first tier consists of $Hang Seng TECH Index (800700.HK)$ and leading internet platforms: $BABA-W (09988.HK)$ 、 $TENCENT (00700.HK)$ 、 $MEITUAN-W (03690.HK)$ 、 $BILIBILI-W (09626.HK)$ 、 $JD-SW (09618.HK)$ 。

These names carry the deepest geopolitical discounts, compounded by triple discounts from delisting risks for U.S.-listed Chinese stocks, regulatory cycles for platform companies, and the timing of AI narrative realization, resulting in the most severe valuation compression across the entire market.

According to Gelonghui’s market observations: following the news confirmation, the Hang Seng Tech Index jumped 3.5%, with $HUA HONG GRACE (01347.HK)$ , Bilibili, Alibaba, and Tencent—key index constituents—all rising together.

The second tier consists of $HKEX (00388.HK)$ and Hong Kong’s local financial sector: HKEX, HSBC, and Hang Seng Bank, $AIA (01299.HK)$ 。

—Geopolitical discount fading combined with improved offshore US dollar liquidity.

HKEX is a pure beta play on Hong Kong equity market liquidity; foreign capital returning directly translates into higher trading volumes and improved revenue expectations from listing-related businesses. Local banks and insurers benefit from the anticipated return of wealth management assets and expansion in offshore US dollar operations.

The third tier comprises high-dividend, quality central SOEs: energy, telecoms, and utilities.

High-dividend sectors have relatively lower geopolitical discount provisions, limiting their marginal upside potential for valuation repair.

However, their strategic value lies in serving asa 'core position safety cushion'—Due to risk management inertia, foreign investors typically allocate first to dividend-paying stocks and only shift toward growth sectors after earnings validation and updates to internal risk guidelines.

Morgan Stanley“Barbell positioning”(one end in AI, advanced manufacturing, and biotech; the other in high-quality dividend stocks and insurance) is the strategic manifestation of this logic.

The fourth cohort consists of policy-sensitive growth sectors such as innovative pharmaceuticals and semiconductors.

Recovery trajectory emerging“Broad-based expansion with structural divergence”characteristics, with the retention of export control lists imposing structural constraints; individual stock recovery potential depends on their degree of reliance on U.S. technology and markets.

Where lies the boundary?

First,“Termination of emergency status”does not equate to“complete removal of all sanctions.”。

The Hong Kong Autonomy Act and the Hong Kong Human Rights and Democracy Act remain in effect, and export control lists along with OFAC sanctions targeting specific individuals and entities have not been simultaneously lifted.

What the executive order terminates is"Incremental supply suppression expectations"and"Legal basis for compliant discriminatory pricing", without addressing"the substantive constraints of existing stock"。

Conflating the two represents a fatal cognitive bias.

Second, valuation recovery and foreign capital inflows are fundamentally"slow-moving variables"。

The 3- to 12-month implementation lag for compliance restructuring cannot be compressed.

Institutions such as Janus Henderson have not significantly increased their Hong Kong equity positions even after DeepSeek drew market attention; concerns over offshore market volatility will not automatically dissipate with administrative orders but require gradual resolution through medium- to long-term validation of earnings stability and liquidity improvements.

Third, the recovery process is nonlinear.

The three-phase pivot points may encounter pullbacks and volatility.

After short-term sentiment recovery is complete, the market will enterthe 'validation period between expectations and reality', and if the pace of medium-term foreign capital inflows falls short of expectations or earnings reports fail to confirm upward revisions in profitability, the market could experience'buy the rumor, sell the news'a phase of adjustment.

Fourth, the tug-of-war over pricing power between southbound capital and foreign investors.

Southbound funds favor high-dividend, domestic-demand recovery stocks, while foreign investors prefer tech leaders and consumption upgrade plays.

Following the termination of the executive order, the contest for pricing power between these two capital flows will reshape sector rotation dynamics, requiring heightened sensitivity to shifts in capital structure.

In conclusion

The termination of Executive Order 13936 represents a systemic clearing event that caps downside risk for Hong Kong equities and drives a shift in the pricing paradigm from"Risk premium pricing driven by geopolitical variables"toward"Fundamental pricing driven by corporate earnings growth"a structural shift. The real opening of upside potential hinges on the alignment of endogenous variables—corporate earnings validation, realization of the AI narrative, and domestic fiscal stimulus.

In the era of fundamental pricing, research discipline matters more than directional bets—this is the new rule everyone must accept after the executive order ends.

Executive Order 13936, original text from the U.S. Federal Register: – https://www.federalregister.gov/documents/2020/07/17/2020-15646/the-presidents-executive-order-on-hong-kong-normalization

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