Hang Seng Eyes Best May Since '09, Tech Fuels Rally

Key Takeaway

• Hang Seng Index may see its best May since 2009, driven by strong tech earnings and optimism, potentially reaching 20,800.
• Tencent's robust earnings boost expectations for other tech giants like JD.com and Meituan, signaling sector resilience.
• Despite mixed results in Alibaba's earnings, the broader Chinese tech sector shows strength amid economic uncertainties.

Hong Kong Stocks Rally Amid Tech Optimism

The Hang Seng Index is poised for a significant rally, potentially marking the best May performance since 2009, driven by robust earnings reports and positive sentiment towards Chinese tech companies. The index's potential rise to the 20,800 area would echo the recovery momentum seen in global stocks during the aftermath of the global financial crisis. This upbeat outlook is bolstered by Tencent's solid earnings report, which has also raised expectations for other tech giants like JD.com and Meituan. Additionally, the beleaguered property sector may see a resurgence due to new policy support, as suggested by market analyst Bruce Grant.

Earnings and Market Dynamics

Recent earnings announcements have provided a mixed yet optimistic view of the Chinese tech sector. Alibaba's revenues slightly exceeded forecasts, though its cloud division's performance was lackluster, and net income dropped due to investment devaluations. In contrast, Tencent reported strong revenue and earnings growth, attributed to effective cost management and increased advertising revenue. Despite a downturn in its domestic games business, Tencent's share repurchase plan and dividend increase have positively influenced Hang Seng futures. Meanwhile, the CSI 300 Index's financial sector has shown resilience, gaining 8.7% over the past month, highlighting a shift in investor focus amidst broader economic slowdown indicators.

Tech Sector's Resilience Amid Economic Uncertainties

The tech sector's resilience in the face of potential economic downturns remains a focal point for investors. A MLIV Pulse survey indicates a recalibration of investor expectations, with a minority viewing large-cap tech stocks as a safe haven against a US recession. This skepticism is set against a backdrop of recent earnings disappointments from US tech firms and changing investor sentiment, underscoring the challenges and opportunities facing the tech sector in navigating macroeconomic headwinds.

Street Views

• Bruce Grant (Bullish on the beleaguered property sector):

  "And there’s even some growing optimism that the beleaguered property sector can get a boost from the latest policy support."