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Hang Seng Faces Test Amid US Rally, Eyes Best May Since '09

Hong Kong's stock rally faces critical test amid US market resurgence and mixed tech earnings, with potential for best May since 2009.

By Athena Xu

5/16, 01:36 EDT
Alibaba Group Holding Limited
NVIDIA Corporation
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Key Takeaway

  • Hong Kong's stock rally, termed "world-beating," is at a crossroads due to a resurgent US market and NVIDIA's upcoming earnings.
  • Mixed tech earnings and China's property stimulus have fueled optimism, with the Hang Seng Index eyeing its best May since 2009.
  • Despite global uncertainties, Chinese tech shows resilience, supported by policy and investor optimism, though challenges remain.

Hong Kong's Market Rally Challenges

Hong Kong's stock market has experienced a significant rally, described as "world-beating," but now faces a critical juncture. The resurgence of the US equity market, highlighted by a soft US inflation print, poses a potential shift in investor focus away from China's stocks. This development comes as NVIDIA, a major player in the US market, prepares to report earnings, which could further catalyze US equities. Morgan Stanley has indicated that Hong Kong's market appears overbought in the short term, suggesting that the influx of quant fund flows may slow, despite the market's potential to remain buoyant with continued positive news.

Stimulus and Earnings Drive Optimism

Recent market dynamics have been influenced by several key factors, including China's latest property stimulus plan and mixed earnings reports from major tech companies. The Hang Seng Index saw a notable increase, driven by gains in the property sector and strong performance from Tencent, which reported an earnings beat. However, Alibaba's weaker-than-expected profit numbers tempered some of the enthusiasm. Despite these mixed results, the broader Chinese tech sector has shown resilience, with the CSI 300 Index's financial sector also posting gains. This optimism is further supported by the potential for the Hang Seng Index to record its best May performance since 2009, fueled by strong tech earnings and sector resilience.

Tech Sector's Resilience Amid Uncertainties

The Chinese tech sector's ability to navigate economic uncertainties remains a key focus for investors. Despite recent earnings disappointments from US tech firms and a recalibration of investor expectations, the sector's resilience is evident. Tencent's effective cost management and increased advertising revenue have contributed to its strong performance, while the broader sector benefits from policy support and investor optimism. However, the MLIV Pulse survey indicates that investor sentiment towards large-cap tech stocks as a safe haven against a US recession is mixed, highlighting the challenges and opportunities that lie ahead.

Street Views

  • Morgan Stanley (Neutral on Hong Kong's market):

    "Morgan Stanley already warned as early as last week that these now extreme overbought indicators are likely to stop more quant fund flows from coming in."