This week, the three major indexes of the Hong Kong stock market fluctuated at high levels. Under the pressure of the earnings season, the Hang Seng Technology Index fell by more than 4%.

Funds are still flowing in - southbound funds bought 21.468 billion yuan against the trend this week, and overseas passive funds recently (March 12 to 19) surged to 1.83 billion US dollars. Funds flowed to defensive sectors such as energy and metals with lower risk appetite.

Institutional insiders believe that the market is shifting from sentiment-driven to fundamental verification stage. With multiple favorable factors, the attractiveness of Chinese assets is expected to continue to increase, driving the Hong Kong stock market to continue to improve.

Technology heavyweight stocks pull back

The three major Hong Kong stock indices weakened this week. The Hang Seng Index fell 1.13%, with intraday volatility intensifying, reaching a high of 24,874.39 points and a low of 23,577.78 points, with a weekly turnover of HK$1.44 trillion; the Hang Seng China Enterprises Index fell 1.53%; the Hang Seng Technology Index, dragged down by technology heavyweight stocks, fell 4.10% for the week.

Large technology stocks are facing a stress test during the earnings season. Although the earnings data of technology giants such as Tencent and Meituan are impressive, there is a strong willingness for capital to cash out. Alibaba-W fell more than 3.76% this week, Tencent Holdings fell 1.92%, and Xiaomi Group-W fell back for two consecutive days after hitting a record high, narrowing its weekly increase to 1.58%.

Qian Wei, chief analyst of overseas economics and major assets at CITIC Securities, said that from the perspective of AI narratives to improve valuations, there is no lack of soil for the Hang Seng Technology Index to rise. The subsequent market is more concerned about whether consumption data can be significantly improved and whether it can make a stable contribution to the revenue of companies such as Alibaba, Tencent Holdings, and Xiaomi Group.

In terms of the consumer sector, according to the Hang Seng Composite Industry Index classification, the consumer staples sector fell 0.55% this week after rising for three consecutive weeks; the consumer discretionary sector fell 2.91% this week.

Funds flowed to defensive sectors such as energy and metals with lower risk appetite. Wind data showed that the energy sector led the market with a 1.13% increase this week, the utilities sector rose 0.94%, and the financial sector also performed steadily.

Funds flow in against the trend

Despite the market volatility, southbound funds continued to flow in this week, with net purchases of 21.468 billion yuan, but the volume decreased by more than 60% month-on-month. Wind data showed that the non-essential consumer sector received a net purchase of 9.418 billion yuan from southbound funds against the trend; the financial sector received a net purchase of 3.829 billion yuan; the raw materials sector received a net purchase of 3.850 billion yuan; the information technology sector saw a slowdown in the trend of net capital inflows, with only 2.7 billion yuan in net capital inflows.

In terms of individual stocks, China Mobile received a net purchase of HK$3.684 billion, ranking first; Alibaba-W received an increase in holdings of HK$2.879 billion; Tencent Holdings and SMIC were net sold at HK$3.128 billion and HK$2.587 billion respectively.

It is worth noting that there has been a surge in overseas passive funds flowing into Hong Kong stocks recently. EPFR data shows that from March 12 to 19, overseas passive funds flowed into Hong Kong stocks by US$1.83 billion, three times the amount of the previous week.

Liu Gang, chief Hong Kong stock and overseas analysis strategist at CICC, believes that in this round of Hong Kong stock rebound, the main force of funds for initial increase in holdings came from overseas hedge funds, while since March, it has been mainly southbound funds.

Among them, the inflow of foreign capital showed structural characteristics, with hedge funds and passive funds being the main force of foreign capital. In terms of long-term funds, there was an inflow of long-term money from the Asia-Pacific region. "This is the feedback I received from communicating with clients in Hong Kong, China, and from roadshows in Singapore and South Korea. These institutions have at least standardly allocated or even slightly overweighted the Chinese market." Liu Gang said that at this point in time, most institutions choose to hold and are willing to increase their allocations when there is a correction.

Expected to enter a new stage driven by fundamentals

Institutional investors believe that the market is expected to enter a new stage driven by fundamentals.

Xie Xuan, deputy director of the Industrial Bank Southeast Asia Research Institute, said that in the short term, the Hong Kong stock market's technology sector is expected to maintain a volatile and strong trend, and attention should be paid to the impact of the risk spillover of US stock volatility. If the risk appetite is low, the allocation of mainland bank Hong Kong stocks can also be increased.

From the perspective of valuation, Huafu Securities believes that the current overall market valuation is close to the historical average. Looking ahead, supported by factors such as the economic recovery, the bottoming out of listed companies' profits, the overall friendly liquidity environment, and the catalysis of the logic of the technology industry, the attractiveness of Chinese assets is expected to continue to increase, driving the Hong Kong stock market to continue to improve.

In terms of allocation, Yang Chao, chief strategy analyst at China Galaxy Securities, said that the first is the technology sector, which is expected to realize performance. With policy support and technological development, AI applications are accelerating, and technology stocks are expected to move from the valuation increase stage to the profit realization stage. The second is the consumer sector with strong policy support. Boosting consumption is an important task this year, so more incremental policies are still worth looking forward to. The third is the high dividend sector with stable investment returns.