Key Takeaways:
Hong Kong equities delivered the strongest monthly gain among major global benchmarks in July, powered by mainland capital inflows and a valuation rebound.
The Hang Seng Index climbed 13.13% in July to 25,884.43, leading global benchmarks as mainland capital flooded into Hong Kong equities.
"The strong July performance reflects the convergence of a valuation discount, global capital rebalancing and AI-driven buying," analysts at China Securities Journal said in a report Monday. "The most straightforward phase of valuation repair has likely passed, and further gains need fundamental data to confirm."
The advance contrasted with a broad global pullback. The Nasdaq fell 3.2% in July, the S&P 500 slipped 0.1%, South Korea's Kospi dropped about 22% in its worst monthly decline on record, and Japan's Nikkei 225 lost 8%. Mainland A-shares also lagged, with the Shanghai Composite down 6.4% and the CSI 300 off 7.86%. The divergence was driven by southbound flows: mainland investors bought a net HK$62.9 billion of Hong Kong stocks in July, up from HK$27.1 billion in June and reversing a HK$3.6 billion outflow in May, according to Stock Connect data. The Hang Seng Tech Index rose 7.98% to 4,829.22, while the Hang Seng China Enterprises Index gained 13.94% to 8,612.15.
Mainland Flows, Not Foreign Capital, Drove the Rally
The rebound was fueled by mainland money rather than overseas inflows. The Hong Kong dollar traded near 7.84 against the U.S. dollar, showing no sign of strengthening from foreign capital entering the market, while southbound Stock Connect purchases accelerated through the month. Daily turnover reached HK$328.2 billion on July 31, concentrated in the technology and financial names that led the advance. The Hang Seng Biotech Index rose 9.82% to 13,885.58, extending the breadth of the rally beyond the largest technology stocks.
Semiconductors Lag as the AI Trade Rotates
The rally was uneven beneath the surface. Semiconductor stocks, a favored AI play, fell sharply in July even as the broader market climbed: GigaDevice Semiconductor dropped 61.36%, Hua Hong Semiconductor lost 40.38%, and Semiconductor Manufacturing International Corp. fell 29.25%. The Asia Semiconductor ETF declined 27.98% over the month. Analysts said the pullback reflects profit-taking after a strong run rather than a breakdown in AI demand, leaving the sector a candidate for value buyers once valuations reset.
The rally has pushed the Hang Seng Index back above its 250-day moving average, the level traders treat as the bull-bear boundary, and toward the 26,000-point mark. With the index in technically overbought territory, the next leg depends on earnings season and whether AI-linked demand translates into profit growth. Analysts at China Securities Journal said the easiest phase of the rebound is over, and investors will need fundamental data to justify further upside.
This article is for informational purposes only and does not constitute investment advice.
