"Market Review" Hang Seng Index rebounds, northbound capital net inflow increases to over HKD 24.9 billion, domestic demand stocks favored

Chinese President Xi Jinping spoke with U.S. President Trump last night (the 4th), stating that as long as both sides uphold an attitude of equality, respect, and reciprocity, they can find ways to address each other's concerns. Meanwhile, southbound capital continued to see net inflows in the afternoon, and the Hang Seng Index initially fell before rebounding today. U.S. tech stocks were under pressure, with the Nasdaq down 1.5%, while the Dow Jones rose 0.5%. At the time of writing, the yield on U.S. 2-year bonds fell to 3.545%, and the yield on 10-year bonds dropped to 4.266%, while the U.S. dollar index rose to 97.74. Dow futures were down 132 points or 0.3%, and Nasdaq futures were slightly down by 1 point. The Shanghai Composite Index fell 26 points or 0.64% to close at 4,075 points, the Shenzhen Component Index dropped 1.4%, and the ChiNext Index fell 1.6%, with a total trading volume of nearly 2.18 trillion yuan in the Shanghai and Shenzhen markets.

The Hang Seng Index today (the 5th) initially fell before rebounding. It opened down 219 points and at one point dropped 436 points to a low of 26,410 points, but later turned up by 72 points to a high of 26,919 points in the afternoon, ultimately rising 37 points or 0.14% to close at 26,885 points; the Hang Seng China Enterprises Index rose 44 points or 0.5% to close at 9,093 points; the Hang Seng Tech Index rose 39 points or 0.7% to close at 5,406 points. The total trading volume for the market was 315.112 billion yuan. The total trading volume for northbound capital was 113.41 billion yuan, while southbound capital saw a net inflow of 24.977 billion yuan today (compared to a net inflow of 13.373 billion yuan on the previous trading day), marking the highest level since August 15 of last year (when the net inflow was 35.876 billion yuan).

The Tracker Fund of Hong Kong (02800.HK) rose slightly by 0.07% to close at 27.1 yuan, with a trading volume of 29.013 billion yuan and a total short selling amount of 14.861 billion yuan, resulting in a short selling ratio of 51.221% (compared to the 3-day and 5-day average short selling ratios of 25.96% and 34.949%, respectively). Southbound Hang Seng Tech (03033.HK) rose 0.6% to close at 5.28 yuan, with a trading volume of 6.72 billion yuan and a total short selling amount of 2.709 billion yuan, resulting in a short selling ratio of 40.328% (compared to the 3-day average of 42.916%).

【Increased Inflows from Northbound Capital, Tencent Rebounds】

In the tech sector, Tencent (00700.HK) opened down 1.4% this morning, hitting a low of 541 yuan during the day, down 3% at one point, but rebounded at the close, reporting a slight increase of 0.1% to 558.5 yuan, with trading volume increasing to 43.46 billion yuan and a total short selling amount of 3.576 billion yuan, resulting in a short selling ratio of 8.228% (compared to the 3-day and 5-day average short selling ratios of 8.757% and 7.011%, respectively). Baidu-SW (09888.HK) plans to repurchase $5 billion in shares and will announce its first dividend this year, with its stock price rising by 2.7%. Alibaba-W (09988.HK) and NetEase-S (09999.HK) rose by 0.1% and 0.4%, respectively.

Goldman Sachs released a report stating that investors' focus continues to revolve around the AI investment trends and regulatory risks of Chinese internet giants. Recently, the sector's stock prices have been under pressure, with the Hang Seng Tech Index dropping about 10% over the past week, reflecting renewed market concerns over regulatory and tax policies. The bank believes that 2026 will be a strategic turning point year for Chinese internet giants, primarily revolving around three major trends: (+/-) intensified competition in consumer-end AI super applications, agency functions, seamless transactions, social interactions, and push capabilities will be key to user retention and application diffusion (+) The capital expenditure of mainland cloud business giants is on the rise, with investments and full-stack capability building from 2026 to 2027 being the core of long-term success, similar to Google's AI ecosystem. (-) Regulatory and tax concerns are heating up again, with investors focusing on the differences and similarities with the regulatory cycle of 2020 to 2021, and worrying about the pressure on corporate profits.

The bank pointed out that the new releases of AI models/Agent applications during and after the Lunar New Year, breakthroughs in DeepSeek/Engram architecture in HBM/memory optimization, the new round of consumer-side AI layout by ByteDance and other internet companies, the upcoming earnings period, and the progress of the State Administration for Market Regulation's antitrust investigation in the next 3 to 6 months will become catalysts for the industry.

【One in a thousand stocks fall, domestic demand stocks are favored】

The Hong Kong stock market has turned weak, with a rise and fall ratio of main board stocks at 22 to 27 (compared to 27 to 24 the previous day), and 1,125 stocks falling (a decline of nearly 3%). Today, 61 constituent stocks of the Hang Seng Index rose, while 25 fell, with a rise and fall ratio of 69 to 28 (compared to 73 to 26 the previous day). The market recorded short selling of HKD 65.059 billion today, accounting for 22.986% of the total turnover of shortable stocks at HKD 283.039 billion (compared to 17.58% the previous day).

Restaurant stock Yum China (09987.HK) saw same-store sales growth of 3% last quarter, with the stock price rising 11.4% to close at HKD 437.2. Peers Haidilao (06862.HK) and Yihai (01579.HK) rose by 4% and 5.7%, respectively. American sportswear stock Nike (NKE.US) rose over 5% overnight, while Li Ning (02331.HK) and Shenzhou (02313.HK) rose by 2.6% and 3.1%. Other consumer domestic demand stocks, such as Mao Geping (01318.HK) and Miniso (09896.HK), rose by 5.3% and 6.2%, while Mixue (02097.HK) rose by 2.9%, Master Kong (00322.HK) rose by 3%, and Haitian Flavoring and Food (03288.HK) rose by 5.2%.

Citi published a research report stating that Yum China's revenue and net profit performance in the fourth quarter of last year exceeded expectations. The 3% same-store sales growth drove a 70 basis point increase in restaurant profit margins. The bank initially expected strong delivery growth to bring greater margin pressure due to rising rider costs, but the company was able to offset this impact through operational leverage. However, the bank believes that the upward trend in same-store sales still carries risks. With the proportion of small store models stabilizing and cost reductions from declining rents, there is more optimism about the lower dilution effect on single-store forecasts, maintaining an "outperform" rating