Chart of the Day - HK.cash (12.02.2025)

The Hang Seng Index advanced 1.6% today, primarily driven by a surge in technology stocks as artificial intelligence optimism outweighed concerns about U.S. Federal Reserve policy. The benchmark's gains were led by tech giants Alibaba and Tencent, though food delivery platform Meituan acted as a drag on the index.

AI Catalyst 

Chinese tech stocks listed in Hong Kong saw significant momentum, with the sector index climbing as much as 2.7%. Alibaba shares surged up to 6.6% following reports of potential collaboration with Apple on AI features for the Chinese market. This development, coupled with DeepSeek's recent emergence and strong performance of Chinese AI models in global benchmarks, has sparked renewed investor confidence in China's AI capabilities.

Valuation Divergence

Despite recent gains, Chinese equities continue to trade at attractive valuations compared to global peers. The MSCI China Index trades at approximately 12 times estimated earnings, less than half the P/E ratio of the S&P 500's 26 times, potentially creating opportunities for value investors. This valuation gap has begun attracting global hedge funds, with BNP Paribas reporting a net 7% of surveyed investors planning to increase China allocations in 2025.

Undervalued Chinese Stocks. Source: Bloomberg L. P.

Market Headwinds 

While AI enthusiasm drives gains, several challenges persist:

• MSCI's latest index review will remove 20 Chinese stocks from its benchmarks, highlighting continued institutional concerns
• Potential market impact from CATL's upcoming IPO could strain liquidity
• Lingering concerns over U.S.-China trade tensions and Federal Reserve policy
• Weak consumer sentiment in mainland China

Near-Term Outlook 

Market attention will focus on upcoming U.S. inflation data and Chinese fourth-quarter economic figures for directional cues. While institutional flows show early signs of returning to Chinese equities, sustainability of the AI-driven rally remains contingent on companies delivering solid earnings, with Alibaba's upcoming quarterly results serving as a key test for market sentiment.

HK.cash (D1 Interval)

The Hang Seng Index is trading above the 61.8% Fibonacci retracement level and has broken above the bearish trendline that began in early October. Bulls will aim to push the price above the 78.6% Fibonacci retracement level, while bears will attempt to drive it back below the trendline. If successful, they could target a retest of the 38.2% Fibonacci retracement level and key SMAs. The RSI has been in bullish divergence since mid-January, with possible cooling off as it approaches the overbought zone. Meanwhile, the MACD continues to show a clear bullish divergence. Source: xStation