Key Takeaways:
The Hang Seng Tech Index fell 2.79% last week, with its trajectory this week dependent on whether upcoming earnings from five US tech giants can overcome geopolitical headwinds. The benchmark index, which tracks the 30 largest technology companies listed in Hong Kong, closed lower after a volatile week that saw early gains erased by rising risk aversion.
"When it comes to the megacaps, we continue to see a theme that good is not good enough," said Jay Woods, chief market strategist at Freedom Capital Markets. This sentiment is critical for the Hang Seng Tech Index, which often takes its cues from the performance and outlook of its US-listed peers.
The tech-heavy index saw sector performance diverge sharply last week. While energy stocks gained 3.8 percent on higher oil prices, healthcare and non-essential consumer stocks fell 5.2 percent and 3.8 percent, respectively. Southbound capital flows into Hong Kong via the Stock Connect remained net positive at HK$16.8 billion, though this was a significant decrease from the previous week, indicating a more cautious stance from mainland investors.
The performance of Hong Kong's tech sector now hinges on two key variables: blowout earnings from US counterparts like Microsoft, Amazon, and Apple to justify high valuations, and a de-escalation of US-Iran tensions to improve global risk appetite. Key US inflation data via the Core PCE index, due April 30, will also factor into market calculations.
This week, Microsoft, Amazon, Meta, Alphabet, and Apple will report their quarterly results. According to a recent report from Soochow Securities, these earnings are a crucial test for the market. With US indices near all-time highs, investor expectations are elevated, particularly regarding the monetization of artificial intelligence.
"For companies, if you haven't beaten, beaten, beat, and raised, you've gotten slaughtered in this market," Nancy Tengler, CEO at Laffer Tengler Investments, wrote in a note. The Soochow report echoes this, stating that earnings that merely meet expectations may not be enough to prevent a market adjustment, which would in turn weigh on the Hang Seng Tech rebound.
Compounding the earnings pressure are geopolitical risks. Tensions surrounding the Strait of Hormuz have kept Brent crude oil prices in the $100 per barrel range, fueling inflation concerns and weighing on global risk sentiment. A further escalation could impact capital flows to emerging markets, including Hong Kong.
Investors are also watching a slate of economic data. In addition to the US Core PCE reading, the US will release its initial Q1 GDP estimate on April 29, the same day China releases its official PMI figures. These data points will provide further clues on the path of global growth and inflation, influencing central bank policy and the appeal of risk assets like Hong Kong tech stocks.
This article is for informational purposes only and does not constitute investment advice.
