Hong Kong Stock Combat Camp Weekly Report: Valuation Trough Effect Stands Out, Cross-Border Funds Quietly Position

In the fourth week of July 2026, the Hong Kong stock market continued its volatile pattern amid multiple factors. The Hang Seng Index edged down 0.3% for the week, but the HSCEI bucked the trend, rising 0.8%. Market sentiment oscillated between policy expectations and external uncertainties, while the valuation trough effect attracted cross-border funds quietly positioning. This week, the Hong Kong Stock Combat Camp focused on two main themes – “valuation bottom” and “dividend strategy” – to clarify key market signals for investors.

1. Market Overview: Bottoming with Notable Structural Divergence

As of the close on July 24, the Hang Seng Index stood at 18,520 points, down 55 points from last Friday, with a weekly range of less than 400 points, indicating cautiousness from both bulls and bears. By sector, tech stocks showed clear internal divergence: Tencent Holdings (00700) rose 2.1% for the week, benefiting from accelerated game license approvals; Meituan (03690) fell 3.5% due to antitrust rumors. At the same time, traditional blue chips like finance and real estate performed steadily, with Ping An (02318) up 1.8% and Hang Seng Bank (00011) hitting a year-to-date high.

Notably, the HSCEI performed strongly this week, driven by the surge in energy and infrastructure state-owned enterprises. PetroChina (00857) rose 4.2% for the week, and China Communications Construction (01800) gained 3.6%, backed by the continuation of the “China Special Valuation” concept and expectations for deepening SOE reforms. The chief analyst of the Hong Kong Stock Combat Camp pointed out that the relative strength of the HSCEI reflects capital seeking certainty. The overall valuation of Hong Kong stocks is at historically low percentiles: the Hang Seng Index’s P/E is below 9x, and P/B is only 0.95x. Compared horizontally with major global markets, the risk premium is highly attractive.

2. Capital Flows: Southbound Funds Accelerate, Dividend Theme Favored

This week, southbound funds net bought about HK$12 billion in Hong Kong stocks, up 35% from last week, showing an accelerating inflow. In terms of capital flows, high-dividend, low-volatility dividend-themed ETFs became the main “money magnets,” with the Huatai Hang Seng Stock Connect High Dividend Index ETF (03190) recording net inflows of over HK$1 billion in a single week. In addition, the Hang Seng Tech ETF (03032) also saw about HK$800 million in net subscriptions, indicating that some funds are starting to left-side position in the tech sector.

The Combat Camp noted that the structural characteristics of this round of southbound funds are particularly evident. On one hand, long-term funds such as insurance and social security continue to increase holdings in state-owned and central enterprises with stable dividends, like banks and power utilities. On the other hand, quantitative private equity and segregated account funds exploit the low valuation of Hong Kong stocks for arbitrage strategies, capturing basis returns through index futures contango/backwardation. This “dual-track” capital structure suggests that the bottom of Hong Kong stocks may be solidifying.

3. Industry Highlights: New Energy Vehicle “New Forces” Emerge, AI Healthcare Heats Up

Despite the dull overall market, some niche sectors still showed structural opportunities. Among auto stocks, NIO (09866) rose 7.2% for the week due to better-than-expected European delivery volumes; XPeng (09868) gained 5.8% on capital speculation around the flying car concept. The Combat Camp believes that the overseas expansion logic of smart electric vehicles is a rare growth theme in current Hong Kong stocks, but warns of potential valuation bubbles.

Another noteworthy track is AI healthcare. This week, MicroPort (02252) announced that its orthopedic surgical robot received a Class III registration certificate from the National Medical Products Administration, propelling its stock up 12% for the week. SenseTime (00020) also released a large-model-based assisted diagnostic system, up 6.5%. The Combat Camp pointed out: after a prolonged adjustment in the Hong Kong biotech sector, some high-quality targets now offer value, but investments should still focus on cash flow and technological moats.

4. Combat Camp In-Depth View: Why Has the Valuation Trough Not Been Filled?

Regarding the current valuation trough in Hong Kong stocks, the Combat Camp raised three key points at this week’s review meeting:

• Liquidity divergence is the main reason: The proportion of foreign capital in Hong Kong stocks remains high, and the Fed’s rate hike cycle is not officially over. Tightening dollar liquidity suppresses HK stock valuations. However, as U.S. economic data weakens, expectations of lower rates may trigger a valuation repair.
• Structural issues need to be resolved: Traditional sectors like finance and real estate have excessive weight in Hong Kong stocks, while emerging tech companies have insufficient weight, resulting in weak overall growth momentum. However, HKEX has reformed its IPO system in recent years to attract new economy companies, which will improve the structure in the long run.
• Cross-border investment needs a new framework: The traditional “buy and hold” strategy is no longer suitable for the high-volatility Hong Kong stock environment. The Combat Camp recommends a “core + satellite” strategy: core positions allocate to high-dividend state-owned enterprise ETFs, while satellite positions capture short-term thematic opportunities through sector ETFs.

The Combat Camp also emphasized the defensive value of the dividend strategy. Against the backdrop of low interest rates and asset scarcity, some central enterprises in Hong Kong stocks offer dividend yields exceeding 6%, with stable payouts, and have become core holdings for domestic insurance and pension funds. Investors are advised to pay attention to component adjustment opportunities in the Hang Seng Stock Connect High Dividend Index (HSHDYI).

5. Outlook for Next Week: Focus on Economic Data and Policy Signals

Looking ahead to next week (July 27-31), Hong Kong stocks will face several key events: first, China’s July official manufacturing PMI will be released on July 31, with the market expecting around 49.8; if it beats expectations, it may boost market confidence. Second, the U.S. Federal Open Market Committee (FOMC) will hold a rate meeting; the market generally expects a 25-basis-point rate hike, but attention should be paid to the post-meeting statement regarding the subsequent path.

The Combat Camp believes that the Hang Seng Index has been range-bound near 18,300-18,800 for nearly three weeks and may choose a direction next week. If PMI data improves and the Fed turns dovish, the index could break upward; otherwise, beware of catch-up downside risk. In operation, maintain a “buy low, sell high, swing trading” approach, focusing on opportunities to accumulate on dips in the HSCEI and dividend ETFs.

(This article is for reference only and does not constitute investment advice. Investing involves risk; proceed with caution.)