Hong Kong stocks retreated on Thursday after the Hang Seng Index reached its highest level since July at 24353 points, closing at 24030 points with a 169-point decline. The pullback followed renewed large-scale attacks between the United States and Iran on Wednesday (8th), marking the first major escalation since a temporary ceasefire agreement in June, with President Trump declaring the truce over and threatening to reimpose a blockade in the Hormuz Strait. European and US stock markets fell under pressure in response to the geopolitical developments. The Hang Seng Index had accumulated gains of 1318 points over five days before the reversal, briefly losing the 24000-point level during intraday trading. Geopolitical tensions in the Middle East have disrupted the recent recovery momentum in Hong Kong's equity market.
Large-Cap Tech Stocks Drive HSI 1836-Point Rebound While Small Caps Lag 15.9%
The Hang Seng Index rebounded a maximum of 1836 points from its over one-year low of 22518 points on June 26. Chinese technology stocks led the recovery, with heavyweight Tencent (00700) gaining 18%, Xiaomi (01810) rising 22.82%, Meituan (03690) advancing 28.36%, and Alibaba (09988) climbing 27.35%. Capital concentrated on platform economy blue chips whose valuations had fallen to cheap levels.
The divergence between large-cap and small-cap performance became pronounced in July. The Hang Seng Index and Hang Seng Composite Large Cap Index both turned positive in year-on-year returns, while the Hang Seng Composite Mid Cap Index stabilized. In contrast, the Hang Seng Composite Small Cap Index tested last month's low on Thursday, recording a year-on-year decline of 15.9%, underperforming the broader market by nearly 17 percentage points.
Market Breadth Indicators Show Persistent Weakness Despite Index Recovery
Internal quality indicators for Hong Kong stocks remained poor despite the Hang Seng Index crossing the 24000-point level. The strong stock index within the EJFQ system showed no significant rebound and remained below the weak stock index, reflecting reduced selling pressure but no obvious increase in buying activity. The HKEJ Green-Red Ratio remained deeply negative, with stocks flashing red signals still in the majority.
The smoothed long-term market breadth (ratio of stocks with 50-day moving average above 250-day moving average) hit a 21-month low of 36.6%, indicating an increasing number of stocks in "ultimate death cross" formation. Negative sentiment continued to pose challenges.
Hong Kong Dollar Pressure and Capital Outflows Constrain Further Gains
The Hong Kong dollar exchange rate has persistently hovered near the weak-side convertibility undertaking of 7.85 per US dollar in recent days. After the mid-year settlement period (peak dividend payout period for Chinese enterprises), Hong Kong dollar funding demand declined as HIBOR trended downward, intensifying carry trade activities and causing capital to temporarily withdraw from Hong Kong.
The lack of water supply means relying solely on existing capital to push up heavyweight stocks will face considerable obstacles for further market advances. The market still lacks heavyweight positive factors to support the early second-half rally, which may purely result from quarterly fund rebalancing activities or short-term parking of funds in lower-valuation Hong Kong stocks after profit-taking in overseas markets, particularly in the Asia-Pacific region.
FAQ
What caused Hong Kong stocks to retreat on Thursday?
Hong Kong stocks retreated 169 points to close at 24030 after renewed attacks between the United States and Iran on Wednesday (8th). President Trump declared the temporary ceasefire agreement signed in June over and threatened to reimpose a blockade in the Hormuz Strait, causing European and US stock markets to fall under pressure.
How did large-cap and small-cap stocks perform differently in the recent rally?
The Hang Seng Index rebounded a maximum of 1836 points from its June 26 low of 22518 points, led by Chinese technology stocks including Tencent gaining 18%, Xiaomi rising 22.82%, Meituan advancing 28.36%, and Alibaba climbing 27.35%. However, the Hang Seng Composite Small Cap Index declined 15.9% year-on-year, underperforming the broader market by nearly 17 percentage points.
What technical indicators suggest continued weakness in Hong Kong stocks?
The smoothed long-term market breadth (ratio of stocks with 50-day moving average above 250-day moving average) reached a 21-month low of 36.6%. The strong stock index within the EJFQ system remained below the weak stock index, and the HKEJ Green-Red Ratio stayed deeply negative with stocks flashing red signals still in the majority.
