CITIC Construction Investment: Are Hong Kong stocks rebounding or reversing in this round?

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that the current round of Hong Kong stock rebound can be understood in two ways: from the perspective of the global technology cycle, it can be understood that the global technology wave is moving from hardware bottlenecks to “application monetization,” and the market responds naturally; from the perspective of the Hong Kong stock market itself, it can be understood that the heavy pressure on Hong Kong stocks ushered in marginal improvement, and the market tried to break out of its trough and ushered in a rebound. CITIC Construction Investment believes that Hong Kong stocks are indeed emerging from multiple pressures, but whether they can move to a round of bulls and bulls in the true sense of the word, they still need to cross two important thresholds — improving corporate profits and slack in dollar liquidity. The former determines the trend of the bull market, and the latter determines the magnitude and elasticity of the bull market. However, before Hong Kong stocks actually cross the two major thresholds of improved profits and easier US dollar liquidity, Hong Kong stocks are closer to recovering their valuations after the period of maximum pressure has passed and overtaken the decline.

CITIC Construction Investment's main views are as follows:

1. Hong Kong stocks rebounded at a time when “hard technology” was falling

There are two interesting phenomena in the current round of Hong Kong stock rebound:

One interesting phenomenon is that Hong Kong stocks form an accurate “seesaw” with the global AI hardware market. Korean stocks and Japanese stocks rose at the beginning of the year, and Hong Kong stocks were weak. This time, the seesaw was on the seesaw. Since July, when Korean stocks and Japanese stocks have collapsed due to deleveraged stock prices, Hong Kong stocks have been bullish. This is yet another seesaw.

Another interesting phenomenon is that Hong Kong stocks are not fully rebounding this time, but rather a “K-type” split. The K-type differentiation of Hong Kong stocks is different from the K-type differentiation of the US, Japan, and South Korea under the previous AI hardware market. The current rebound in Hong Kong stocks is characterized by higher consumption and cycle performance, leading the rise in application-side assets such as the Internet, consumption, and automobiles, while the crowded AI hardware in the early stages clearly retreated.

Whether it's the seesaw effect or the K-shaped differentiation within Hong Kong stocks, the current rebound in Hong Kong stocks is indeed a mirror image of the global AI hardware market.

The significant divergence between the trends of Hong Kong stocks and the Japanese and South Korean stock markets essentially reflects a structural shift in the main lines of global AI trading.

After capital was withdrawn from high-ranking racetracks, Hong Kong stocks became the main direction for capital acceptance due to factors such as near-indiscriminate sell-off in the first half of the year, low AI hardware exposure, and the reduction of overall valuations to historic lows.

2. The rebound was mitigated by extreme depressing factors in the early period.

At the end of June, Hong Kong stocks faced a triple combination of “low positions, high shortness, and undervaluation,” and market sentiment almost froze. We have also previously systematically discussed the market conditions faced by Hong Kong stocks and judging future trends in the topic “How Do We View Hong Kong Stocks at the Present Time”.

If we understand why Hong Kong stocks have continued to weaken since 2025, we can understand why this round of Hong Kong stocks rebounded when global AI hardware fell.

Factor 1. Larger models reduced the cost of AI applications, and Hong Kong stock application-side assets regained pricing.

Vendors such as DeepSeek continue to lower model call prices, and improvements in model capabilities occur simultaneously with lower inference costs.

Hong Kong stock internet platforms have user, traffic, payment, advertising, e-commerce and cloud service scenarios, and directly benefit from the reduction in the commercialization threshold for AI applications. As a result, capital is shifting from hardware with high capital expenditure intensity to the application side where there is more room for commercial imagination.

Factor 2. The policy side released liquidity dividends, and capital inflows to the south increased.

On July 7, Central Bank Governor Pan Gongsheng made it clear at the “Hong Kong Fixed Income and Currency Summit and Bond Connect Forum” that the country's foreign exchange reserves will continue to increase the asset allocation ratio in Hong Kong and inject more momentum into the development of Hong Kong's capital market.

In the past six months, the liquidity environment for Hong Kong stocks was weak in an environment where the Federal Reserve maintained high interest rates, US dollar liquidity was tight, and foreign capital continued to flow out. The policy of increasing foreign exchange reserves and the expansion of Hong Kong's assets resonated with the Southbound Link.

Factor 3. The US dollar index fluctuated, pressure on the denominator side of Hong Kong stocks eased in stages, and profit expectations shifted from rapid decline to phased stabilization.

The US dollar index remained range-bound in July, and global liquidity was not further tightened, providing a repair window for Hong Kong stock valuations that had been suppressed earlier.

Finally, and most importantly, in the face of marginal improvement in the macro environment, after experiencing a concentrated reduction in profit forecasts for Internet platforms, automobiles, and consumer technology in the first half of the year, the market already fully priced negative factors. The recent slowdown in earnings in Hong Kong stocks has been sufficient to promote the restoration of undervalued assets.

3. Rebound or reversal? We still need to cross two major thresholds to fully enter a bull market

We believe that this round of rise cannot be defined as a typical round of bull market for the time being; it is closer to recovering the valuation after an overdue decline. Because we are actually moving towards a bull market, we need to completely resolve the three major negative factors that suppress Hong Kong stocks, especially corporate profits and dollar liquidity issues.

The increase in the Hang Seng Index in July was significantly higher than that of the Hang Seng Technology Index. The upward momentum mainly came from capital rotation, undervaluation repair, and short compensation, rather than an overall improvement in corporate profits. We believe that this phenomenon confirms our judgment.

After the rapid rise in the index, the space driven solely by valuation and capital will gradually narrow. To move from a rebound to a reversal, Hong Kong stocks need to cross two major thresholds:

First, profit, profit. Because profit is the ultimate determinant of the long-term trend of Hong Kong stocks.

After 2023, the profit recovery in Hong Kong stocks was not elastic, the focus of the index was no longer systematically moved upward, and capital became the core pricing variable. The profits of the current AI industry cycle are concentrated more on upstream hardware, while Hong Kong stock Internet platforms are still in the phase of capital expenditure expansion and industry competition intensifying, and profit expectations have not yet formed stable support.

If profit forecasts on internet platforms stop being revised downwards, AI applications begin to contribute substantial revenue, and competition between automobiles and local living prices becomes rational, then Hong Kong stocks may rebound from a sharp decline to trending markets. August entered the interim reporting season, focusing on the financial statements of key companies.

Second, whether liquidity performance improves determines the elasticity and magnitude of the Hong Kong stock bull market.

Hong Kong stocks have rebounded due to recent shocks in the US dollar, the return of foreign capital, and low allocations in public funding, and marginal improvements in the liquidity environment. The Hong Kong stock positions of active biased equity funds fell to 15.1% in the second quarter, down 7.4 percentage points from the first quarter. Low positions mean that once expectations continue to improve, there is still room for capital recovery.

However, we must also see that the liquidity of Hong Kong stocks cannot be circumvented.

First, the trend of global dollar liquidity. Currently, the yield on 30-year US bonds once stood at 5%. As an offshore market, Hong Kong stocks are extremely sensitive to the liquidity of the US dollar, and the valuation ceiling is still being suppressed.

Second, after the pressure to lift the ban gradually declined, there was still a new peak at the end of the year, and the first quarter of 2027 will also face pressure from cornerstone investors to lift the ban six months after the Hong Kong stock IPO in the third quarter of 2026.