Late-July HK stocks rebound: Southbound funds buy Tencent, Meituan; institutions see H2 recovery

On July 28, 2026, Hong Kong stocks finally saw a strong rebound. The Hang Seng Index rose 1.8% to close at 18,542 points; the Hang Seng Tech Index jumped 2.6% back above 3,800. Market turnover surged past HK$120 billion. Southbound funds recorded a net buy of HK$8.3 billion, with Tencent Holdings and Meituan-W receiving HK$1.2 billion and HK$0.8 billion respectively, becoming the focus of capital.

1. Market Review: Tech Stocks Lead, Consumer Discretionary Recovers

Hong Kong stocks showed a broad rally today. The tech sector was particularly strong: Meituan-W closed up 5.2%, Tencent Holdings +3.8%, Alibaba-SW +2.9%. On the news front, Meituan's Q2 core local commerce revenue beat expectations, and the company announced a buyback plan, boosting investor confidence. Tencent benefited from faster game license approvals and cloud business recovery expectations.

Meanwhile, the consumer discretionary sector also rebounded significantly. Haidilao rose 4.1%, China Resources Beer +3.5%. The market broadly believes that as the mainland economy recovery expectations strengthen, consumer confidence is gradually recovering, and discretionary sectors like dining and beer may see an earnings inflection point.

2. Fund Flows: Southbound Funds Accelerate, Institutions Position in Undervalued Sectors

Since mid-July, Southbound funds have been flowing steadily into Hong Kong stocks. As of July 28, cumulative net buying for the month exceeded HK$40 billion, near June's full-month level. Funds mainly flowed into internet, biotech, and new energy sectors.

Analysts noted that the Hang Seng Index's P/E ratio is only 9.8x, at historical lows, with a discount of over 50% to the S&P 500's 21x. In global asset comparison, HK stocks offer a significant valuation trough. BofA Securities' latest report stated that the Fed rate hike cycle is nearing its end, easing liquidity pressure, plus mainland's steady-growth policies continue to ramp up, making HK stocks poised for a H2 recovery. It recommends overweighting internet and consumption leaders.

3. Policy & Macro: Mainland Growth Signals Clear, US-China Relations Show Thaw

The State Council executive meeting recently deployed further consumption-boosting measures, including extending the purchase tax exemption for new energy vehicles and supporting home appliance trade-ins. Meanwhile, the People's Bank of China signaled flexible use of monetary policy tools to maintain reasonable liquidity. These policies directly benefit HK-listed Chinese stocks and consumption companies.

Internationally, US-China trade relations showed signs of easing. The US Trade Representative's Office announced a delay in some tariff decisions on China, and both sides plan new trade talks in early August. Market optimism rose, with offshore renminbi strengthening to 6.75 per USD, further stimulating foreign capital back to HK stocks.

4. Hot Sector Analysis: Biotech & NEVs Gain Attention Again

The biotech sector led gains today: BeiGene +6.1%, Innovent Biologics +5.5%. Two catalysts: China's NMPA approved several new drug marketing applications, and market expectations that the US BIOSECURE Act's near-term passage is less likely eased sanctions worries for Chinese CXO firms.

The new energy vehicle sector also performed strongly: Li Auto-W +4.8%, NIO-SW +4.2%. News-wise, June NEV sales rose 35% YoY, with penetration exceeding 50% for the first time. Li Auto's Q2 deliveries hit a new high, and management said on the earnings call that two new models will be launched in H2 to further solidify market share.

5. Outlook: Buy on Dips, Focus on Earnings Certainty

Looking ahead, most institutions are cautiously optimistic. Everbright Securities' strategist pointed out that HK stock valuations have fully priced in pessimism, with catalysts including rising Fed rate cut expectations, improving mainland economic data, and increased corporate buybacks. On allocation, they suggest focusing on internet platforms, consumption leaders, and the new energy chain.

However, some caution that global inflation stickiness and geopolitical risks remain potential disruptors. Investors should avoid chasing highs and gradually build positions in quality stocks or related ETFs during pullbacks.

Overall, with multiple catalysts in funds, policy, and valuations, the late-July rebound may signal the confirmation of a bottom. Investors should closely monitor the upcoming July PMI data and the Fed's interest rate decision to seize the window.