Why did Hong Kong stocks make a comeback in July?

In July, Hong Kong stocks experienced a strong rebound, with the Hang Seng Index accumulating over a 13% increase, outperforming other major global markets during the same period. Global major stock indices' gains and losses for July, source: Wind Overall, the recent rebound in Hong Kong stocks has primarily benefited from multiple factors such as valuation advantages, fund inflows, and changes in market trends. On one hand, July saw a significant adjustment in global tech stocks, mainly due to profit taking in the US stock market and deleveraging in the South Korean market. Previously, Hong Kong stocks had just recorded their worst monthly performance of the year in June, with the Hang Seng Index briefly falling to around the 22,000-point mark, which had already released a considerable amount of short-selling pressure. In terms of valuation, the Hang Seng Composite Indexs five-year price-to-earnings ratio is just 12 times, which is even lower than the average level of the past five years. On the other hand, markets with a high proportion of AI industry chains, such as South Korea, had previously siphoned off funds from Hong Kong stocks, but this pressure has alleviated somewhat following recent deleveraging in overseas AI trading. It's also worth mentioning that as fluctuations due to overseas risk spillover intensified, on July 20, the China Securities Regulatory Commission held a multi-party seminar, sending clear signals for policy stability, which supported market sentiment and boosted Hong Kong stocks. According to Huachuang Securities tracking statistics, in the week of July 22, the total inflow of Chinese stock funds surged against the trend to reach 21.76 billion USD, hitting a remarkably high percentile of 97.5% since 2025, showing signs of independence from global market trends. As the market warmed, after mid-July, passive foreign capital once again turned into net inflows into Hong Kong stocks, with a cumulative net inflow exceeding 700 million USD in the two weeks ending July 15 and July 22. In this context, in July, net inflows of southbound capital to Hong Kong stocks also reached approximately 62.9 billion HKD, an increase of about 132% compared to June. On a micro level, during this round of rebound, high-yield sectors such as Hong Kongs tech and internet stocks, biotechnology, and finance took turns strengthening. This was both benefited from the rebalancing of funds following the cooling of AI trading and underscored the scarcity of certain assets within Hong Kong stocks. Market data shows that in the nearly 20 trading days, major tech stocks such as MEITUAN-W (03690), BABA-W (09988), and XIAOMI-W (01810) all rose more than 20%, performing stronger than the Hang Seng Index during the same period, becoming one of the main driving forces behind the rebound. In addition, the Hang Seng Financial Index, Hang Seng Consumption Index, and Hang Seng Innovative Pharmaceutical Index also all increased by around 10% in July. Overall, the strong performance of Hong Kong stocks in July was not driven by a single sector and represented a shift from the extreme structure of market concentration in AI seen in the first half of the year. Looking ahead, HAITONG INT'L indicates that over the next few weeks, major global stock markets will still be in the aftermath of this round of "summer chill," while the Hong Kong stock market, which adjusted first in mid-May, is expected to lead in finding support and stabilization. This article is reprinted from Caijing Lianhe, author: Feng Yi; GMTEight editor: Xu Wenqiang.