【Column by Yuan Zhifeng】Northbound Funds Net Sell Tencent (700) for Fourth Consecutive Day

Stock Recommendation Today - Sunny Optical (2382, $58.25), Target Price $64.0, Stop-Loss Price $56.0

1) Market Outlook

Hong Kong stocks declined on Wednesday with increased turnover. Southbound funds maintained net buying, primarily increasing positions in the Tracker Fund of Hong Kong (2800). The market is expected to consolidate in the short term, and investors are advised to buy on dips.

2) Summary of China and Hong Kong Market Conditions on the Previous Day

The Hang Seng Index opened 153 points lower on Wednesday. The decline narrowed to 92 points early in the session, but the index continued to slide, falling as much as 330 points to 24,802 in the afternoon. It closed at 24,892, down 239 points or 1.0%. Turnover increased by 8% from the previous day to HK$312.8 billion. The June daily average turnover was HK$319 billion.

Southbound funds via Stock Connect recorded net buying of approximately HK$7.5 billion. The Tracker Fund of Hong Kong (2800), Hua Hong Semiconductor (1347), and Zhipu (2513) saw net inflows of HK$6.18 billion, HK$1.2 billion, and HK$360 million, respectively. Tencent (700), Alibaba (9988), and Kingboard Laminates (1888) recorded net outflows of HK$2.77 billion, HK$2.76 billion, and HK$820 million, respectively. Cumulative net inflows since July are around HK$87.3 billion, compared to HK$27.1 billion in June.

The Hang Seng Index fell 1.0%, with 38 gainers, 50 decliners, and 5 unchanged among its constituents. Xinyi Solar (968), Lao Pu Huang Gold (6181), and Zijin Mining (2899) rose over 6%, leading the gainers among blue chips. Luoyang Molybdenum (3993) and Sino Biopharmaceutical (1177) gained over 4%. CNOOC (883), PetroChina (857), China Shenhua (1088), Chalco (2600), and China Hongqiao (1378) rose over 2%. HSBC (5), China Life (2628), BeiGene (6160), and Nongfu Spring (9633) rose over 1%. NetEase (9999) and Tencent (700) fell over 7%, the worst among blue chips. Kuaishou (1024) dropped over 5%. Geely Automobile (175), Haidilao (6862), and New Oriental (9901) declined over 3%. CATL (3750), Pop Mart (9992), and Shenzhou International (2313) fell over 2%. Sands China (1928) and China Telecom (728) declined nearly 2%.

The Hang Seng Tech Index dropped 3.0%, closing at 4,668, with 3 gainers, 26 decliners, and 1 unchanged. All large tech stocks declined, with Alibaba (9988), JD.com (9618), Xiaomi (1810), and Baidu (9888) down over 2%, Kuaishou (1024) down over 5%, and Tencent (700) and NetEase (9999) down over 7%. Minimax (100) fell over 11%, the worst performer. Leapmotor (9863) declined over 5%. NIO (9866), Hua Hong Semiconductor (1347), and Bilibili (9626) fell over 4%. Zhipu (2513), SMIC (981), Tencent Music (1698), and XPeng (9868) declined over 3%. BYD (1211), Li Auto (2015), Ctrip (9961), JD Health (6618), and Alibaba Health (241) fell over 2%. Horizon Robotics (9660) and Lenovo (992) rose over 6% and 3%, respectively, the best performers. Sunny Optical (2382) rose over 1%.

By sector, large tech, artificial intelligence, electric vehicles, semiconductors, and catering stocks underperformed the broader market, leading the declines. Minimax (100) and Zhipu (2513) fell over 11% and 3%, respectively. Leapmotor (9863) and NIO (9866) declined over 5% and 4%. Hua Hong Semiconductor (1347) and SMIC (981) fell over 4% and 3%. Yum China (9987) and Haidilao (6862) dropped over 3%.

Conversely, mining, gold, photovoltaic, coal, and oil stocks rose against the market, leading the gains. MMG (1208) rose over 9%, Luoyang Molybdenum (3993) and Jiangxi Copper (358) gained over 4%. Zijin Mining (2899) and Shandong Gold (1787) rose over 6% and 4%. Xinyi Solar (968) and GCL Technology (3800) gained over 6% and 3%. Yankuang Energy (1171) and China Coal Energy (1898) rose over 4% and 3%. CNOOC (883) and PetroChina (857) gained over 2%.

The Shanghai Composite Index opened down 0.6%, its lowest point of the day, rose to a 0.5% gain during the morning, but weakened in the afternoon, closing at 3,867.03, up 0.1%. The Shenzhen Component Index fell 1.4%. The STAR 50 Index dropped 2.3%. Total turnover in the Shanghai and Shenzhen markets was approximately RMB 2.65 trillion, down about RMB 310 billion from the previous day. The June daily average turnover was about RMB 3.11 trillion.

3) Stock-Specific News

U.S. retail giant Costco has partnered with JD.com (9618), making JD.com the exclusive official e-commerce partner for Costco in China, providing third-party direct sales and logistics fulfillment services. (Hong Kong Economic Journal)

Link REIT (823) announced it has agreed to sell a 50% stake in 100 Market Street, Sydney, Australia, to Aware Real Estate for approximately AUD 226 million (about HK$1.239 billion). Net proceeds are expected to be around AUD 223 million. The transaction is expected to complete within the third quarter. (Hong Kong Economic Journal)

Cathay Pacific (293) expects its attributable profit for the first half of the year ending June 30 to be between HK$6.0 billion and HK$6.5 billion, including approximately HK$1.4 billion from the dilution of its stake in Air China (753), recognized as a deemed disposal gain of an associate. Last year’s first-half profit was HK$3.7 billion, indicating a year-on-year increase of about 62% to 75%. (Hong Kong Economic Journal)

China’s leading optical communications equipment manufacturer InnoLight Technology (3308) began its global offering from yesterday until next Monday, issuing 54.5 million H-shares globally. The Hong Kong portion accounts for 10%, with the remainder for international investors. The offering price is up to RMB 1,010, raising up to RMB 55.045 billion. Each lot consists of 50 shares, with an application fee of RMB 51,009.29. (Hong Kong Economic Journal)