Xiaomi rose nearly 5% post-earnings; Baidu and China Unicom plunged. The Hang Seng Index edged up just 23 points. Investors looking to allocate to Chinese tech stocks while maintaining cash flow may consider the Hang Seng TECH Covered Call Active ETF.

US stocks fell overnight due to declines in chip stocks and rising long-term bond yields, dragging down the Nasdaq. Hong Kong stocks opened 124 points lower this morning before fluctuating and stabilizing. The Hang Seng Index hit a low of 25,315 points before gradually recovering lost ground, finally closing at 25,495 points, up 23 points or 0.09%. Full-day turnover was HK$253.1 billion. The SOE Index rose 18 points or 0.21% to close at 8,471 points. The Tech Index fell 57 points or 1.21% to close at 4,682 points. Southbound capital recorded a net outflow of HK$10.6 billion.

Xiaomi $XIAOMI-W (01810.HK)$ (1810) bucked the trend after announcing its Q2 results, closing at HK$27.44, up 4.81%, making it the best-performing constituent of both the SOE Index and the Tech Index. The company's adjusted net profit for the period fell 42.6% year-on-year to RMB 6.219 billion, slightly below expectations. Revenue dropped 6.1% to RMB 108.922 billion, with gross margin declining to 19.8%. Reduced smartphone shipments led to a decline in smartphone revenue, but a 25.9% increase in average selling price partially offset the impact. EV deliveries increased 28.2% to 104,200 units, but lower vehicle prices caused the segment's gross margin to fall. The market also focused on management's comment that the rise in memory costs is expected to slow in Q3, and that the new generation of humanoid robots will be unveiled at the World Robot Conference, driving the post-earnings rebound in share price.

Baidu $BIDU-W (09888.HK)$ (9888) plunged 11.03% due to earnings missing expectations, closing at HK$89.95. The company's Q2 adjusted net profit fell 46.3% year-on-year to RMB 2.573 billion, while revenue dropped 4.2% to RMB 31.325 billion. Online marketing business remained under pressure, and the growth rate of AI cloud infrastructure revenue also slowed from Q1. However, revenue from core new AI businesses still rose 25% year-on-year, accounting for nearly half of general business revenue. The company will continue to expand computing power and invest in models and AI applications. Several major banks have lowered earnings forecasts and target prices due to weak advertising business and increased AI investment.

Other internet and tech stocks showed mixed performance. Tencent $TENCENT (00700.HK)$ (0700) rebounded from its lows, closing at HK$447.2, up 1.09%; Meituan $MEITUAN-W (03690.HK)$ (3690) closed at HK$87.05, up 1.75%; JD.com $JD-SW (09618.HK)$ (9618) closed at HK$112.6, up 1.44%. Alibaba $BABA-W (09988.HK)$ (9988), which is set to announce its earnings tomorrow, closed at HK$124.2, down 1.97%. The market is focused on whether Alibaba Cloud's revenue growth can accelerate, if cloud business margins are improving, and the progress in reducing losses for Taobao Flash Sales; Kuaishou $KUAISHOU-W (01024.HK)$ (1024) fell another 4% ahead of its earnings release, closing at HK$37.8. The market expects its e-commerce and marketing businesses to remain weak, but the Kling AI business may still make a positive contribution.

HKEX $HKEX (00388.HK)$ (0388) reported record-high revenue and other income for the first half, with net profit rising 24% to HK$10.568 billion. The interim dividend increased by 23.8% to HK$7.43. Second-quarter net profit rose 21% year-on-year, beating market expectations. The stock closed at HK$414.6, up 2.37%; Towngas $HK & CHINA GAS (00003.HK)$ (0003) saw its interim net profit rise 22.8% to HK$3.64 billion, declaring an interim dividend of 12 cents. Management expects full-year earnings to achieve high single-digit growth. JPMorgan upgraded its rating to "Overweight," driving the stock to close at HK$7.285, up 7.37%, making it the best-performing blue-chip stock of the day.

Telecom stocks were weighed down by dividend news, with China Unicom $CHINA UNICOM (00762.HK)$ China Unicom (0762) saw its interim net profit drop by 34.6% and suspended the interim dividend. Although it expects the full-year profit decline to narrow significantly, this still triggered selling pressure, with the stock closing at HK$5.495, down 12.36%; ZTO Express $ZTO EXPRESS-W (02057.HK)$ (2057) closed at HK$176 after reporting earnings, down 3.72%; Hengan International $HENGAN INT'L (01044.HK)$ (1044) saw its interim net profit fall 8.7% to RMB 1.254 billion. It maintained an interim dividend of RMB 0.7, while gross margin improved to 35.3%. The stock price closed at HK$24.12, up 1.26%.

Overseas chip stocks declined, with the Philadelphia Semiconductor Index plunging nearly 5%, putting pressure on Hong Kong-listed chip and AI hardware stocks. SMIC $SMIC (00981.HK)$ (0981) closed at HK$73, down 3.76%; Hua Hong Semiconductor $HUA HONG GRACE (01347.HK)$ (1347) closed at HK$113.7, down 11.79%; Tianshu Zhixin $ILUVATAR COREX (09903.HK)$ (9903) closed at HK$368, down 13.41%; Montage Technology $MONTAGE TECH (06809.HK)$ (6809) fell 7.02%; GigaDevice $GIGADEVICE (03986.HK)$ (3986) closed at HK$496.8, down 4%. Although GigaDevice's first-half profit surged 10.9-fold and Bank of America raised its target price, it failed to reverse the sector's selling pressure; Lenovo $LENOVO GROUP (00992.HK)$ (0992) closed at HK$30.12, down 3.89%; Sunny Optical $SUNNY OPTICAL (02382.HK)$ (2382) closed at HK$58.4, down 3.31%. AI model stocks also retreated, including Zhipu $Z.AI (02513.HK)$ (2513) closed at HK$1,012, down 2.97%; MiniMax $MINIMAX-W (00100.HK)$ (0100) closed at HK$292.4, down 8.28%; Xunce $XUNCE (03317.HK)$ (3317) closed at HK$124.6, down 6.46%.

Unitree Robotics opened higher and surged on its first day of trading on the STAR Market, closing at RMB 845, a 4.6-fold increase from its issue price, with turnover reaching RMB 23.16 billion. Concerns that market focus and capital flows were shifting to new A-share robotics IPOs led to sell-offs in similar Hong Kong-listed stocks, such as Ubtech Robotics $UBTECH ROBOTICS (09880.HK)$ (9880) closed at HK$85.5, down 9.81%; Dobot $DOBOT (02432.HK)$ (2432) closed at HK$24.72, down 11.21%; Estun $ESTUN (02715.HK)$ (2715) fell 14.2%, closing at HK$17.76; Sanhua $SANHUA (02050.HK)$ (2050) fell 5.78%, closing at HK$26.74. The World Robot Conference opened today, with Unitree showcasing its G1 robot's ping-pong playing and dancing capabilities, and Xiaomi unveiling its new humanoid robot with 66 degrees of freedom. However, these developments failed to halt the sector's decline.

Performance among consumer stocks was mixed. China Resources Beer $CHINA RES BEER (00291.HK)$ (0291) Interim net profit fell 10.7% to RMB 5.17 billion, with a dividend cut; closed at HK$21.06, down 4.96%; Tingyi (Cayman Islands) Holding Corp. $TINGYI (00322.HK)$ (0322) closed at HK$13.88, up 2.21%, hitting a record high; Giant Biogene $GIANT BIOGENE (02367.HK)$ (2367) saw its target price raised by Citi following its earnings release; closed at HK$28.45, up HK$0.34 or 1.21%. Hesai $HESAI-W (02525.HK)$ (2525) had its target price cut by Bank of America after reporting earnings; closed at HK$17.20, down 6.22%; Huaneng Power International $HUANENG POWER (00902.HK)$ (0902) reported Q2 net profit below expectations; closed at HK$5.385, down 5.36%.

Although the Hang Seng Index edged up 23 points today, the Hang Seng Tech Index fell 57 points or 1.21%, closing at 4,682 points. Tech stocks showed divergent performance today, as Baidu $BIDU-W (09888.HK)$ (9888) plunged 11.03% post-earnings, while AI hardware stocks such as Hua Hong Semiconductor also declined significantly, reflecting that the tech sector remains influenced by earnings results and profit-taking in overseas semiconductor stocks. In this market environment, the Hang Seng Tech Index Covered Call Active ETF $Hang Seng TECH Covered Call Active ETF (03589.HK)$ (3589) recently closed at HK$7.985, down only 0.992%. It uses assets related to the Hang Seng Tech Index as its allocation base and actively sells call options to collect option premiums. Its investment focus is not simply to replicate the rise and fall of the tech index, but to establish potential monthly income through option premiums while maintaining exposure to large-cap Chinese tech stocks. When tech stocks trade sideways, rise moderately, or experience high volatility, option premiums can bring additional income to the fund. However, if the tech index surges, the fund's upside performance may lag behind ETFs that directly track the tech index due to the sold call options.

ETF 3589 also announced its latest distribution notice, with a distribution of HK$0.15 per unit, going ex-dividend on September 1. This provides another deployment option for investors seeking cash flow amidst tech stock volatility. However, the HK$0.15 represents the declared distribution amount for this period and is neither fixed interest nor a guaranteed return. The fund manager may discretionarily adjust the distribution amount and frequency based on market conditions, option premium income, and portfolio performance. This ETF is more suitable for investors looking to allocate to Chinese tech stocks while prioritizing cash flow and volatility management. If the goal is to fully capture the upside potential of the tech sector, products that directly track the Hang Seng Tech Index would be more appropriate.

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