Hong Kong stocks retreat in March, Tencent's short positions surge by 266%. Institutions remain optimistic about structural recovery opportunities.

Caixin News March 31 (Edited by Hu Jiarong) The Hong Kong stock market on March 31 faced significant pullback pressure, and market sentiment remained persistently low. Analysis shows that the main driver of this round of adjustment is the escalation of geopolitical risks in the Middle East. As global risk-averse sentiment heats up and pressures on liquidity intensify, investors’ risk appetite for Hong Kong stocks has fallen markedly, and near-term volatility has increased. According to the latest data, the Hang Seng Index was at 24,689.83 points, with a cumulative decline of 7.29% for the month; the Hang Seng Tech Index was at 4,670.65 points, with a cumulative decline of 9.10% for the month.

In the same period, short-selling activity in the Hong Kong stock market has remained at a high level, with major technology constituent stocks becoming the focus. As Tencent Holdings (00700.HK) and Alibaba-W (09988.HK) are weighting stocks in the technology index, the abnormal fluctuations in the short-selling scale of these two stocks have become an important indicator for observing market sentiment.

Tencent Holdings’ short-selling data hits a stage high

Tencent Holdings’ short-selling data reached a new high over the past week. In March, Tencent’s number of shares sold short surged from 1.7228 million shares at the beginning of the month to 6.3127 million shares on March 30, an increase of more than 266%; during the period, it also touched a stage peak of 8.3963 million shares. In the same period, the short-selling amount jumped from HK$2.393 billion to HK$3.040 billion, with an intraday high reaching HK$4.356 billion, indicating that short-seller capital concentrated its bets and exerted a significant drag on near-term share prices.

Note: Tencent Holdings

Alibaba’s short-selling data shows a slight pullback. The number of shares sold short first rose and then fell. It was 19.7669 million shares at the beginning of the month and narrowed to 14.7465 million shares on March 30, a decline of about 25.4%; however, during the period it still experienced high volatility, touching a high of 24.8744 million shares. The short-selling amount fell from HK$2.718 billion to HK$1.766 billion, and it once surged to HK$4.128 billion intraday.

Note: Alibaba

How do institutions view the current Hong Kong stock market?

Although the Hong Kong stock market has not performed well, institutions are optimistic about its future performance.

Caitong Securities stated that recent adjustments in technology stocks are mainly affected by both earnings realization and market sentiment, but the adjustment magnitude has already been relatively sufficient, and there has been no fundamental change in industry fundamentals. The market’s main concern is still centered on developments in the Middle East geopolitical situation; if tensions continue, it will weigh on the technology sector. But as the situation in the Middle East becomes clearer, technology stocks are expected to seize opportunities for a rebound.

Founder Securities believes that the current market environment has similarities to the beginning of 2022: both face concerns about geopolitical conflicts pushing up oil prices, worries about the Federal Reserve’s policy shift, and “stagflation” expectations. However, the core factor supporting the market’s long-term improvement has not changed. The market is already in a bottom-range area, and investors can make structural positioning in advance.

In its latest report, Hua Tai Securities emphasized that in 2026 the Hong Kong stock market will shift from being driven by “valuation repair” to being driven by “improvements in fundamentals.” AI industry catalysts are expected to drive improvements in ROE for relevant Hong Kong stock sectors, and the technology sector remains the main investment line for the medium-to-long term. At the same time, institutions generally view structural opportunities in “high-dividend-type sectors” and the “quality growth track” favorably.

Ping An Asset Management said that the high volatility in the Hong Kong stock market in 2026 will become the norm, and a one-way upside rally at the beta level is unlikely to be seen again. However, continuing net inflows from southbound capital and the potential space for overseas capital to rebalance away from under-allocation to Chinese assets will provide significant structural opportunities for individual Hong Kong stocks and sectors.

(Caixin News Hu Jiarong)