CSC: HK Stock Rebound Is Not a Reversal — Bull Market Must Clear Both Earnings and Liquidity Hurdles
0xBroomberg
China Securities Construction (中信建投) calls the current Hong Kong rally an oversold valuation repair, not a bull-market reversal. A true bull run requires clearing two hurdles: corporate earnings improvement and U.S. dollar liquidity easing.
What does this rally actually look like?
Hong Kong stocks and global AI hardware are on a seesaw — since July, Korean and Japanese equities fell on deleveraging pressure while Hong Kong strengthened, mirroring the pattern from early in the year.
The rally is not broad-based. It is a K-shaped split: internet, consumer, and auto stocks — the application layer — lead gains, while previously crowded AI hardware names pull back.
This means → capital is not "turning bullish on Hong Kong." It is rotating out of richly valued AI hardware and landing in a market whose valuations were crushed to historic lows with low AI-hardware exposure.
What is driving the bounce?
Lower barriers to AI commercialization: DeepSeek and peers keep cutting model-inference costs, giving Hong Kong internet platforms — with their user bases, traffic, payments, and ad inventory — fresh pricing power.
Policy-driven liquidity: PBoC Governor Pan Gongsheng said on July 7 that China's foreign-exchange reserves will raise their allocation to Hong Kong assets; this dovetails with southbound Stock Connect expansion.
The dollar did not tighten further: the DXY held a range in July, opening a repair window for suppressed valuations; meanwhile, the pace of Hong Kong earnings downgrades slowed, giving low-valued assets room to recover.
Why isn't this a bull market yet?
In July the Hang Seng Index rose markedly more than the Hang Seng Tech Index. The drivers were sector rotation, cheap-valuation repair, and short covering — not broad earnings improvement.
In plain terms = stocks rose because they were "cheap enough for bargain hunters," not because companies are actually earning more.
After a fast run-up, the room for purely valuation-and-flow-driven gains narrows.
Hurdle one: can earnings keep up?
Since 2023 Hong Kong earnings recovery has lacked elasticity. This AI cycle's profits concentrate in upstream hardware; Hong Kong internet platforms remain in a phase of rising capex and intensifying competition.
This means → earnings expectations have not yet formed a stable floor. The rally can shift to a trend only when internet-platform earnings forecasts stop being revised down, AI applications begin contributing real revenue, and price wars in autos and local services cool.
The report flags August's interim-results season as the key verification window.
Hurdle two: will dollar liquidity loosen?
The U.S. 30-year Treasury yield briefly topped 5%. As an offshore market, Hong Kong is acutely sensitive to dollar liquidity, and the valuation ceiling remains capped.
Active equity funds' Hong Kong allocation fell to 15.1% in Q2, down 7.4 percentage points from Q1. This reflects that low positioning leaves room for re-entry if expectations improve.
But risks persist: a fresh wave of lock-up expiries looms at year-end, and Q1 2027 will face unlocking pressure from cornerstone investors in Q3 2026 Hong Kong IPOs.
What is CSC's bottom-line call?
Until both hurdles — earnings improvement and dollar liquidity easing — are truly cleared, the current rally is classified as an oversold valuation repair after the period of maximum stress.
In plain terms = the worst is over, but a real bull market is still distant — earnings must trough and recover, and the dollar must loosen. Neither condition alone is enough.
Content is for reference only, not financial advice.