CICC: HK Stock Rebound Driven by Position Rebalancing; Sustained Rally Still Requires Fiscal or Tech Catalysts
Taylor Wilson
The Hang Seng has rebounded 13.2% from its late-June low, but CICC's breakdown shows the move is almost entirely valuation-driven with minimal earnings contribution — this means → the fuel is sentiment repair, not fundamental improvement, and sustained gains still require a fiscal push or an AI commercialization breakthrough.
What is actually rallying?
The leaders are not the first-half stars but the worst laggards: discretionary consumption rebounded 26.2%, healthcare 25.2%, materials 17.9% — a classic rotation from crowded winners to beaten-down losers.
Alibaba, Meituan, and JD.com at one point surged over 40%; meanwhile, first-half darlings in fiber optics, copper foil, and large-model plays corrected by more than 60%.
In plain terms = money was squeezed out of overcrowded tech positions and poured into sectors nobody wanted — not new capital entering, but old capital relocating.
What is driving the rebound — valuation or earnings?
CICC's decomposition: of the Hang Seng's 13% gain, valuation accounted for 11%; earnings contribution was minimal. The Hang Seng Tech picture is nearly identical.
The valuation repair came from a narrowing equity risk premium (better sentiment), not from lower risk-free rates — the blended China-US risk-free rate for HK stocks actually rose from 3.6% to 3.9% over the period.
This means → the market did not rally because money got cheaper; it rallied because panic receded. That kind of bounce is elastic but shallow-rooted.
Three headwinds in the first half — how many are resolved?
CICC identified three constraints behind the first-half weakness: ① weak domestic demand dragging consumption; ② HK market structure lacks AI hardware exposure, and internet leaders lagged the AI trade; ③ heavy IPO supply, elevated US Treasury yields, and persistent fund outflows.
Only the third has meaningfully improved. Southbound daily net inflows averaged HK$2.86 billion in July, well above June's 1.29 billion and May's net outflow; offshore funds recorded two consecutive weeks of inflows in late July — the first in three months.
The first two remain largely unchanged — the late-July Politburo meeting offered limited incremental policy, with stimulus signals weaker than the "Sept 24" moment and the post-tariff April meeting.
Hang Seng vs Hang Seng Tech — which still has room?
The Hang Seng's valuation has returned to near its historical mean; the odds premium that traders were betting on is largely cashed in. CICC keeps its near-term fair range at 26,000–27,000.
Hang Seng Tech fell harder in the prior selloff, and its valuation remains in a historically low percentile — the odds advantage is not yet exhausted.
This means → if US Treasury yields decline or internet leaders produce a catalyst, Hang Seng Tech has meaningfully more upside elasticity than the broader Hang Seng.
Is the worst of the tech volatility over?
CICC's proprietary AI stress index last week approached levels seen at the April and November 2025 bubble-fear peaks, signaling stress had reached a historical extreme; the latest weekly reading has eased.
This reflects that panic-driven selling pressure in tech may be fading — but a major move higher still needs a new catalyst to lift the demand ceiling.
Beyond tech, CICC recommends a moderate tilt toward innovative pharma, select internet names, gold, and non-ferrous metals — the last two benefit from an expected pullback in US yields.
Can this bounce become a sustained trend?
CICC is explicit: position rebalancing and low valuations can only support a tactical bounce. A sustained, broad-based rally requires one of two "moments."
A "Sept 24 moment": fiscal policy genuinely tilting toward household consumption — matching the force of the September 24, 2024 policy pivot.
A "DeepSeek moment": internet leaders delivering a proven AI monetization breakthrough — giving the market earnings, not just narratives.
In plain terms = this bounce is "falling too far and snapping back." Turning it into a real uptrend requires either the government spending to boost consumer wallets or Big Tech proving AI can make money — until one of those arrives, don't mistake a bounce for a reversal.
Content is for reference only, not financial advice.