To The Moon

$HSI(HSI)$

The Hang Seng Index (HSI) has reclaimed a level it has not seen since 2021, breaking through the 26,000-point barrier and marking a decisive four-year high. For a market that had been written off by many global investors as “uninvestable,” the rally signals a dramatic shift in sentiment.

Not only has the index as a whole gained momentum, but individual constituents are delivering staggering returns. Eleven Hang Seng Index stocks have doubled in value this year, and several blue-chip giants have reclaimed multi-year highs. Tencent closed at HK$633, its strongest level in three years, while NetEase’s U.S.-listed shares reached $145, an all-time record.

With China’s tech, consumer, and financial sectors driving the rally, investors are asking two key questions:

1. Are we witnessing the beginning of a structural bull market in Chinese equities?

2. Beyond the giants like Alibaba and Tencent, where are the next opportunities?

Historical Context: From “Uninvestable” to Market Revival

To understand the significance of this rally, it is worth revisiting where Hong Kong equities stood just two years ago. From 2021 through 2023, the HSI was battered by:

• Regulatory crackdowns on Chinese tech platforms, eroding investor confidence.

• Zero-COVID policies, which stifled consumer spending and disrupted supply chains.

• Property sector turmoil, most notably the defaults of Evergrande and Country Garden.

• Geopolitical tensions, which led foreign funds to aggressively cut exposure to Chinese markets.

At its nadir, the HSI had fallen below 15,000 points, erasing over a decade of gains. Several global banks labeled Chinese equities “uninvestable,” a designation that spooked even long-term value investors.

Fast forward to 2025, and the picture looks starkly different. With Beijing’s pivot to pro-growth policies, a recalibration of tech regulations, and signs of stabilization in consumer sentiment, the Hang Seng Index has roared back to life. Breaking through 26,000 points is more than just a numerical milestone—it is a symbol of restored confidence.

Performance Overview: A Market on Fire

The breadth of the rally is perhaps its most striking feature. Gains are not limited to a handful of blue chips; instead, they span across multiple sectors.

Heavyweights Leading the Charge

• Tencent (0700.HK): +51.67% YTD, closing at HK$633. Strength from gaming titles, advertising recovery, and early AI initiatives.

• NetEase (NTES): +45% YTD, reaching $145 in U.S. trading, its all-time high. Diversified revenue streams and global gaming growth underpin momentum.

• Xiaomi (1810.HK): +62.90% YTD, with its smartphone recovery and EV expansion reigniting investor enthusiasm.

• China Life Insurance (2628.HK): +58.79% YTD, benefiting from higher premium income and a favorable interest rate environment.

• HSBC (0005.HK): +41.67% YTD, supported by strong net interest margins and consistent dividend payouts.

The Surprise Doublers

Eleven Hang Seng Index stocks have doubled in value in 2025 alone—a remarkable feat in any major market index. The standouts include:

1. Pop Mart (9992.HK): +222.80%

2. Sino Biopharmaceutical (1177.HK): +181.97%

3. Chow Tai Fook Jewellery (1929.HK): +146.39%

4. ANTA Sports (2020.HK): +134%

5. Country Garden Services (6098.HK): +128%

6. Haier Smart Home (6690.HK): +121%

7. Li Ning (2331.HK): +118%

8. BYD Electronic (0285.HK): +113%

9. China Resources Beer (0291.HK): +111%

10. Meituan (3690.HK): +109%

11. China Shenhua Energy (1088.HK): +105%

This mix of consumer brands, healthcare leaders, service providers, and industrials suggests that the rally is not narrowly concentrated but instead reflects broad confidence across China’s economic ecosystem.

Market Sentiment: Bullish or Just a Relief Rally?

The big question is whether this surge is the start of a sustainable bull market or merely a sharp cyclical recovery. Several factors argue for optimism:

1. Policy Backdrop: Beijing has shifted tone, prioritizing economic stability over regulatory overreach. Targeted stimulus measures for property, consumer spending, and advanced manufacturing have begun to take effect.

2. Global Positioning: With U.S. equities priced at stretched valuations (~20x forward earnings on the S&P 500), China offers relative value. Fund managers looking to diversify portfolios are reallocating into Hong Kong and mainland shares.

3. Earnings Momentum: Corporate earnings across consumer discretionary, gaming, and biotech are beating expectations, lending credibility to the rally.

But risks remain firmly in play:

• Property Drag: While Beijing has intervened, the property sector remains a weak spot that could drag on banks and household wealth.

• Geopolitical Volatility: U.S.-China relations, Taiwan tensions, and tariff risks continue to cast uncertainty.

• Structural Demographics: A shrinking working-age population and slower productivity growth pose long-term challenges.

For now, the weight of momentum and valuation discounts suggest that investors are leaning bullish, though cautiously.

Beyond Alibaba and Tencent: Where to Look Next

For over a decade, Alibaba (BABA) and Tencent (0700.HK) were the default gateways for foreign investors seeking Chinese tech exposure. But the 2025 rally shows that leadership is broadening.

NetEase (NTES) – The Quiet Winner

NetEase’s ascent to an all-time high reflects its strength in online gaming and music streaming. Unlike Alibaba, which is still restructuring, and Tencent, which faces advertising volatility, NetEase benefits from steady global gaming franchises and new releases that resonate beyond China.

Xiaomi (1810.HK) – More Than Smartphones

Xiaomi’s nearly 63% surge stems from both smartphone recovery and its ambitious foray into electric vehicles. Investors see Xiaomi evolving into a consumer tech + EV hybrid, which gives it a differentiated growth runway compared to legacy smartphone peers.

Meituan (3690.HK) – Riding the Experience Economy

China’s consumer rebound is not only about goods—it’s also about services. Meituan, with its dominant food delivery and local services platform, captures this shift. As Chinese consumers increasingly spend on convenience and experiences, Meituan stands to benefit.

Sino Biopharmaceutical (1177.HK) – Biotech on the Rise

As one of the 11 doublers, Sino Biopharmaceutical highlights healthcare as a national priority. With government support and an expanding portfolio of treatments, biotech is emerging as a high-growth sector.

Sector Breakdown: Where the Momentum Lies

1. Technology: Tencent, NetEase, Xiaomi, and BYD Electronic are leading innovation, with AI, gaming, and hardware expansion driving growth.

2. Consumer Discretionary: Pop Mart, Li Ning, ANTA Sports, and Chow Tai Fook are reflecting the revival of Chinese household spending.

3. Financials: HSBC and China Life Insurance are defensive plays that still deliver steady dividends alongside capital appreciation.

4. Healthcare: Sino Biopharmaceutical and other biotech firms benefit from policy backing and rising healthcare demand.

5. Energy & Industrials: China Shenhua Energy and Haier Smart Home demonstrate that traditional sectors can still generate growth when aligned with structural trends.

Valuation Check: Still Attractive?

Despite the rally, valuations for the HSI remain modest:

• HSI forward P/E: ~10–11x

• S&P 500 forward P/E: ~20x

• MSCI World forward P/E: ~18x

This discount continues to be one of the index’s strongest selling points for foreign capital.

However, valuations within sectors are diverging:

• Tencent & NetEase: Richer multiples but supported by earnings growth.

• Pop Mart & Chow Tai Fook: Momentum-driven, trading well above historical averages.

• Financials (HSBC, China Life): Still undervalued, offering both dividends and upside.

Final Verdict: Where to Look Next

The HSI’s break above 26,000 is a powerful signal. It shows investors are willing to move past the pessimism of recent years and reengage with Chinese equities. But for selective investors, the key is avoiding overheated momentum plays and focusing on earnings-backed growth.

• Tech leaders (Tencent, NetEase, Xiaomi): Accumulate on 10–15% pullbacks.

• Financials (HSBC, China Life): Attractive at current levels with yield support.

• Consumer names (Pop Mart, ANTA, Li Ning): Be selective—momentum may cool, but long-term brands still have pricing power.

• Healthcare (Sino Biopharm): High risk, high reward; suitable for aggressive growth investors.

Key Takeaways

1. The Hang Seng Index has reclaimed 26,000 points, its highest level in four years.

2. Eleven HSI constituents have doubled in 2025, led by Pop Mart, Sino Biopharm, and Chow Tai Fook.

3. The rally reflects broad-based strength, spanning tech, consumer, healthcare, financials, and energy.

4. Valuations remain attractive versus U.S. and global peers, though some consumer names are overheating.

5. Beyond Alibaba and Tencent, opportunities exist in Xiaomi, NetEase, Meituan, and biotech leaders.

6. Entry opportunities lie in pullbacks, particularly for tech and financials, while momentum-driven consumer stocks may warrant caution.

✅ Bottom Line: The HSI rally past 26,000 marks a turning point for Chinese equities. For long-term investors, this is not simply a relief rally—it could be the foundation of a new bull cycle. But selectivity will be crucial: while some names are poised for sustainable growth, others risk overheating.