Tencent's new model supports the market; Hang Seng Index rises slightly by 19 points. Mobile device stocks strengthen, while earnings-driven stocks and AI concepts diverge. We remain bullish on the Hong Kong stock technology supply chain; consider the E Fund HKEX Tech 100 ETF.

On the futures expiry date, Hong Kong stocks traded in a narrow range. The Hang Seng Index (HSI) opened 155 points lower on Friday but gradually recovered, turning positive by as much as 133 points during the session. However, gains later narrowed, with the index closing at 25,584, up just 19 points or 0.07%. Full-day turnover reached HK$231.2 billion. The Hang Seng China Enterprises Index was nearly flat, closing at 8,490. The Hang Seng Tech Index fell 15 points or 0.33% to close at 4,605. Southbound capital recorded a net inflow of HK$3.2 billion.

Tencent ($TENCENT (00700.HK)$ )’s subsidiary, Tencent Hunyuan, released and open-sourced its new large language model, Hy4 preview. Blind tests showed its performance slightly surpassed Zhipu AI’s GLM-5.3 and Moonshot AI’s Kimi K3, supporting the stock price against the market trend. After opening lower, the share price reversed to gain 1.65%, closing at HK$455.2;$XIAOMI-W (01810.HK)$ ) rose 1.24% to close at HK$27.82; Meituan ($MEITUAN-W (03690.HK)$ ) remained unchanged ahead of its earnings announcement, closing at HK$77.5; Alibaba ($BABA-W (09988.HK)$ ) fell 1.39% to close at HK$113.9; JD.com ($JD-SW (09618.HK)$ ) dropped 1.4% to close at HK$110.5; Kuaishou ($KUAISHOU-W (01024.HK)$ ) declined 0.59% to close at HK$33.46.

Following Tencent’s launch of the new model, the market re-evaluated the technical iterations, commercialization paths, and valuations of various mainland Chinese large models. Shares of two AI model companies came under pressure: Zhipu AI ($Z.AI (02513.HK)$ ) fell 6.03% to close at HK$1,090; MiniMax ($MINIMAX-W (00100.HK)$ ) fell 4.51% to close at HK$300.4, after having its target price cut earlier by CICC. Mobile device stocks were boosted by news, with Huawei holding its HarmonyOS Ecosystem Conference and market anticipation building for Apple's autumn new product launch. BYD Electronics ($BYD ELECTRONIC (00285.HK)$ ) rose 6.27% to close at HK$24.76, becoming the best-performing blue-chip stock; Sunny Optical Technology ($SUNNY OPTICAL (02382.HK)$ ) saw its interim net profit rise by about 10% year-on-year. Following the earnings release, Citi raised its target price, and the share price climbed 3.28% to close at HK$66.2.

Chip stocks generally pulled back. SMIC ($SMIC (00981.HK)$ ) fell 1.61% to close at HK$70.15; Hua Hong Semiconductor ($HUA HONG GRACE (01347.HK)$ ) fell 1.79% to close at HK$120.6; Tianshu Zhixin ($ILUVATAR COREX (09903.HK)$ ) fell 1.98% to close at HK$396.8; Montage Technology ($MONTAGE TECH (06809.HK)$ ) fell 5.38% to close at HK$285; GigaDevice ($GIGADEVICE (03986.HK)$ ) fell 5.81% to close at HK$486; Kingboard Laminates ($KB LAMINATES (01888.HK)$ ) announced its seventh price hike of the year, with the share price rising 2.78% to close at HK$45.16; Victory Giant Technology ($VGT (02476.HK)$ ) Half-year net profit rose by 33%, yet the stock fell 12.96% after the earnings release, closing at HKD 220.2; Yangtze Optical Fibre and Cable ($YOFC (06869.HK)$ ) gave back 5.28%, closing at HKD 170.3. Volatility in overseas AI hardware and semiconductor sectors, combined with the market continuing to assess the return on AI capital expenditure following NVIDIA's earnings, has kept funds cautious regarding related high-valuation stocks.

Performance of mainland property stocks diverged. Longfor Group ($LONGFOR GROUP (00960.HK)$ ) saw its half-year net profit drop by 39%, but its share price rose 1.65%, closing at HKD 679; China Resources Land ($CHINA RES LAND (01109.HK)$ ) fell nearly 2%, closing at HKD 33.18; China Overseas Land & Investment (0688) dropped over 2%, closing at HKD 13.82. The market continues to focus on the progress of sales, profitability, and balance sheet improvement among mainland property developers; Shimao Group ($SHIMAO GROUP (00813.HK)$ ) faced a winding-up petition from creditors involving debts from four judgments by mainland courts, totaling nearly RMB 2.5 billion. Its share price fell 11.94%, closing at HKD 0.059.

Regarding other individual stocks, OOIL ($OOIL (00316.HK)$ ) saw its interim profit and interim dividend both fall by over 23% year-on-year. The share price dropped 8.65%, closing at HKD 156.2, making it the blue-chip stock with the largest decline for the day. Akeso Biopharma ($AKESO (09926.HK)$ ) narrowed its first-half loss to RMB 424 million, but its share price fell 5.78%, closing at HKD 95.35. Mixue Group ($MIXUE GROUP (02097.HK)$ ) dropped 7.11%, closing at HKD 211.6, after Bank of America lowered its target price. Nongfu Spring ($NONGFU SPRING (09633.HK)$ ) saw its target price slightly raised by CLSA, rising 1.3% to close at HK$43.5; Pop Mart ($POP MART (09992.HK)$ ) rose 3.05% to close at HK$158.7; Sunac China ($SUNAC (01918.HK)$ ) surged 10.66% to close at HK$0.675; Lonking Holdings ($LONKING (03339.HK)$ ) jumped 8.9% to close at HK$3.55, hitting a new high; Bank of East Asia ($BANK OF E ASIA (00023.HK)$ ) gained 4.23% to close at HK$18.24, also setting a new record high.

Market focus shifted to concerns over the weakening US dollar, the US fiscal deficit, and Fed Chair Walsh's remarks impacting gold prices and interest rate expectations. Gold prices climbed back above US$4,600 per ounce, lifting gold mining stocks. China National Gold International Resources ($CHINAGOLDINTL (02099.HK)$ ) rose 7.72% to close at HK$273.4, hitting a new high; Zhaojin Mining Industry ($ZHAOJIN MINING (01818.HK)$ ) increased 3.5% to close at HK$23.94; Shandong Gold ($SD GOLD (01787.HK)$ ) edged up 2.9% to close at HK$25.52; Aluminum Corporation of China ($CHALCO (02600.HK)$ ) advanced 3.61% to close at HK$8.765.

Hong Kong stocks fluctuated in a narrow range on Friday, with the Hang Seng Index edging up 0.07%, while the Hang Seng Tech Index fell 0.33%, reflecting continued divergence in the performance of large-cap tech stocks and AI concepts. For investors looking to capture the development trends of Hong Kong's tech sector through a diversified basket, consider the E Fund HKEX Tech 100 ETF ($E Fund HKEX Tech 100 ETF (03456.HK)$ ), which closed at HK$8.29 on Friday, down 0.241%. Ticker 3456 primarily tracks the HKEX Tech 100 Index, holding 100 Hong Kong-listed technology and innovation companies. It covers six major sectors: AI, biotechnology and pharmaceuticals, electric vehicles and smart driving, information technology, internet, and robotics. Compared to tech ETFs that focus solely on large internet platforms, 3456 also allocates to chips, optical communications, innovative drugs, and smart vehicle stocks. Among these, AI-themed holdings account for approximately 42% of the weight, while biotechnology and pharmaceuticals make up about 21%, totaling over 60%. This makes the fund's performance highly sensitive to trends in hard tech and pharmaceutical stocks.

Today, Alibaba (9988) fell 1.39%, acting as a major drag on 3456, given its weight of approximately 10.93% in the ETF. However, Tencent (0700) rose 1.65% and Xiaomi (1810) gained 1.24%, providing some support to the fund. On the other hand, 3456 also holds biotech stocks such as BeiGene (6160), Wuxi Bio (2269), and Innovent Bio (1801), meaning it is not entirely dominated by internet platform and semiconductor stocks. The expense ratio of 3456 is 0.50%, with a lot size of 100 fund units. Based on today's closing price, the entry cost is approximately HK$829. This product is more suitable for investors seeking diversified exposure to Hong Kong's innovative technology, biotechnology, and AI industrial chains, and who can tolerate higher volatility. However, investors should note that the top weighted holdings still include large-cap stocks like Tencent, Alibaba, and Xiaomi, so the earnings results and market sentiment surrounding these individual leading stocks will significantly impact the fund's performance.

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