The Market Review: Hang Seng Index falls 2%, Tech Index breaches the 5,000 mark, financial and airline stocks face selling pressure

The United States and Israel launched military actions against Iran over the weekend, and the U.S. military continued airstrikes on Iran today (February 2). Iran launched missile attacks on Israel and U.S. military bases, with reports indicating that several U.S. military aircraft have crashed. The Hang Seng Index fell today along with external markets, narrowly holding above the 26,000 mark, while the Hang Seng Tech Index fell below the 5,000 point level. The U.S. Producer Price Index (PPI) for January rose more than expected, and the Dow Jones and Nasdaq both fell 1.1% and 0.9% respectively last Friday (February 27). At the time of writing, the yield on U.S. 2-year bonds rose to 3.418%, and the yield on U.S. 10-year bonds rose to 3.973%, while the U.S. Dollar Index rose to 98.37. Dow futures are down 667 points or 1.4%, and Nasdaq futures are down 434 points or 1.7%. The National People's Political Consultative Conference will be held in Beijing this Wednesday (February 4). The Shanghai Composite Index rose 19 points or 0.47% to close at 4,182 points, while the Shenzhen Component Index fell 0.2%, and the ChiNext Index fell 0.5%. The total transaction amount in the Shanghai and Shenzhen markets was 3.02 trillion yuan.

The Hang Seng Index opened down 324 points, and the decline later expanded to 747 points, hitting a low of 25,882 points. It closed down 570 points or 2.1% at 26,059 points; the Hang Seng China Enterprises Index fell 157 points or 1.8% to close at 8,701 points; the Hang Seng Tech Index fell 148 points or 2.9% to close at 4,989 points. The total market turnover for the day increased to 357.679 billion HKD. The total turnover of northbound trading was 154.741 billion HKD, while southbound funds had a net inflow of 16.214 billion HKD today (net inflow of 14.997 billion HKD on the previous trading day). China Southern Hang Seng Technology (03033.HK) fell 2.8% to close at 4.89 HKD, with a turnover of 27.85 billion HKD. The Tracker Fund of Hong Kong (02800.HK) fell 2.3% to close at 26.28 HKD, with a turnover of 18.988 billion HKD.

Tech stocks faced downward pressure, with Tencent (00700.HK) and NetEase-S (09999.HK) falling 0.8% and 1.1% respectively. Kuaishou-W (01024.HK), Meituan-W (03690.HK), JD.com-SW (09618.HK), Baidu-SW (09888.HK), Alibaba-W (09988.HK), and Bilibili-W (09626.HK) fell between 3.4% and 4.5%. Additionally, electric vehicle stock BYD (01211.HK) will hold a disruptive technology launch event on Thursday (February 5), and its stock price rose 4.4% against the market trend.

【Aviation stocks under pressure, oil and gold stocks rise】

With geopolitical tensions, international oil prices have surged. PetroChina (00857.HK) and CNOOC (00883.HK) saw their stock prices rise 4.1% and 5.6% respectively, while CNOOC Services (02883.HK) rose 7%. Among energy transportation stocks, China Merchants Energy (01138.HK) rose 8.9%. Sinopec Oilfield Services (01033.HK) soared 34%, Shandong Molong (00568.HK) surged 116%, and Baqian Oilfield Services (02178.HK) skyrocketed 105.6% Gold prices rose, with Shandong Gold (01787.HK) and Zhaojin (01818.HK) up 7.1% and 6%, respectively, and Zijin Mining International (02259.HK) up 4.7%. Aluminum stock Hongqiao (01378.HK) rose 7.2%. Airline stocks were affected by disruptions in Middle Eastern routes, with China Southern Airlines (01055.HK) and China Eastern Airlines (00670.HK) down 8.3% and 7.9%, respectively, while Air China (00753.HK) and Cathay Pacific (00293.HK) fell 5.3% and 4.1%.

According to a Citigroup report, under the baseline scenario, Brent crude oil prices are expected to remain in the range of $80 to $90 per barrel for at least the next week. During this period, the conflict between Israel and Iran continues to escalate, increasing risks to regional energy infrastructure, while oil transportation through the Strait of Hormuz and Iranian exports will also be slightly interrupted. The bank stated that its baseline view is that a change in Iran's leadership or regime could end the war within one to two weeks, or that the U.S. may decide to de-escalate the conflict after observing a change in leadership, while also curbing Iran's missile and nuclear programs within the same timeframe. If the situation cools down, oil prices will fall back to around $70 per barrel and maintain some risk premium until the second half of 2026, when they are expected to return to $62 per barrel. The bank also noted that if internal conflict or regional conflict breaks out in Iran, oil prices will remain high for a long time, although this is not the bank's baseline scenario, it remains a possibility.

【Stocks Decline with 1,700 Falling, HSBC and Standard Chartered Weak】

The Hong Kong stock market turned weak, with a rise-to-fall ratio of 12 to 42 for main board stocks (compared to 27 to 24 the previous day), with 1,737 stocks declining (a drop of 3.5%). Today, 12 constituent stocks of the Hang Seng Index rose, while 76 fell, with a rise-to-fall ratio of 14 to 86 (compared to 70 to 27 the previous day). The market recorded short selling of HKD 65.866 billion, accounting for 22.561% of the total turnover of HKD 291.948 billion for shortable stocks.

Local financial stocks were under pressure, not only affected by the Israel-Iran conflict but also impacted by concerns over AI and private credit (following the collapse of Market Financial Solutions (MFS), a UK mortgage institution supported by Wall Street). HSBC (00005.HK) saw its stock price drop nearly 5.2% to HKD 139.7, while Standard Chartered Group (02888.HK) fell 6.5% to HKD 185.6, and Bank of China Hong Kong (02388.HK) dropped 4.7%.

JP Morgan released a report anticipating that the escalation of military tensions in the Middle East will trigger a market-wide risk aversion correction. Among the bank stocks covered by the bank, Standard Chartered may experience a more significant pullback, primarily due to its higher exposure to the Middle East, with expected contributions from loans and revenues in the UAE accounting for 2.5% and 5.6%, respectively, by 2025. As of the second quarter of 2025, approximately 73% of Standard Chartered's loans in the UAE are to government, public institutions, or the banking sector, thus overall credit risk is manageable. Additionally, the bank mentioned that HSBC disclosed that its loans and revenues from the Middle East account for 2.3% and 3.8%, respectively The bank pointed out that, according to reports, the total loan amount of Chinese banks in the Middle East is approximately USD 15.7 billion, accounting for about 0.09% of the total loans of the five major banks. Due to the currently low valuation of domestic banks and the significant flexibility of Chinese policies in responding to macro shocks, the bank believes that compared to other peers in the region, the stock prices of domestic banks will show greater resilience