Hang Seng Tech Index barely holds above 4,900 points after Tencent and Alibaba announce earnings

Tencent Holdings (00700.HK) and Alibaba (09988) announced their earnings, which slightly missed market expectations, repeatedly dragging down the Hang Seng Tech Index. On the morning of March 20, the Hang Seng Tech Index nearly held at 4,900 points, closing at 4,911 points, down 1.7% with a turnover of HKD 41.3 billion. Alibaba plunged 5.76%, and Xiaomi Group (01810.HK), which recently announced new cars, dropped 6.94%.

Industry insiders believe that after the earnings reports of these two internet giants, most of the risk in the Hang Seng Tech Index has been released. The focus now shifts to the performance of Meituan (03690) and Xiaomi Group, which will report next week. The ongoing geopolitical tensions in the Middle East still require time to digest, and with the Federal Reserve maintaining interest rates and limited chances of rate cuts this year, short-term risk releases continue to lower valuations further. The Hang Seng Tech Index will highlight its medium- and long-term investment value.

Guotai Securities International strategist Wu Lixian told First Financial that after the earnings of these two heavyweight tech stocks, their stock performance was relatively weak, dragging the Hang Seng Tech Index lower. As constituent stocks release earnings, short-term negative news is further absorbed by the market. However, tech stocks still face challenges from the Middle East situation and high oil prices, which have a significant impact on interest rates. Previously, the Hang Seng Tech Index touched a low of around 4,750 points. Around 4,800 points is expected to be a better support level. From a medium- to long-term perspective, tech stocks still have opportunities to perform this year, with valuations gradually becoming more attractive.

Li Zeming, Chief Investment Officer of Blue Water Capital Management Limited, said that Tencent, Alibaba, and Xiaomi dragging the index down suggests that most short-term risks have been released. Both Tencent and Alibaba have fallen to key support levels. Alibaba’s decline was due to a gap between its earnings and market expectations, while Xiaomi’s upcoming earnings report next week has already released some risk. The Hang Seng Tech Index should have good support around 4,800 to 4,900 points. Further short-term declines are limited, but more risks remain in the long term. Currently, the market is concerned that investments related to artificial intelligence may not meet expectations.

Li Zeming also expressed concern that the ongoing tensions in the Middle East are gradually affecting various industries. Risks are being released as oil prices rise, but the longer the tension persists, the higher oil prices will go, gradually impacting specific economic and livelihood projects, such as increasing costs for refineries and chemical plants, and directly affecting gasoline prices overseas. Rising oil prices push inflation higher, which constrains monetary policy.

On the early morning of March 19, the Federal Reserve announced that the federal funds rate target range would remain at 3.5% to 3.75%, in line with market expectations. Market observers believe that the current US-Israel-Iran conflict has driven up international oil prices and heightened inflation concerns, prompting the Fed to adopt a cautious stance on future monetary policy.

CICC analyst Liu Gang stated that this Fed meeting might be the most conflicted and difficult one: on one hand, non-farm payroll data shows the job market is beginning to feel pressure; on the other hand, the highly uncertain Iran situation makes it difficult to accurately assess inflation impacts. With no signs of easing in Iran, the meeting lacked enough dovish signals to offset the upward pressure on oil prices, resulting in a hawkish market reaction.

(This article is from First Financial)