Morgan Stanley: It's time to pay attention to Hong Kong stocks This year, the Hong Kong stock market has been struggling to catch up, with old stocks falling sharply. The overseas investment of Futu Tiger has also been suspended, and the inflow of funds is not smooth. This state lasted for almost a year. After the global AI market rises, money mainly rushes towards storage, semiconductor equipment, servers, and power equipment, and the US stock market can directly benefit from hardware demand dividends. Hong Kong shares are dominated by the Internet, finance, consumption and energy. There are not many companies that can graze this round of hardware market. Naturally, they cannot win. After July, the original weakness became a talisman instead. Global technology stocks have begun to fluctuate sharply, with semiconductors and technology hardware falling along with overseas markets. The Hong Kong stock market lacks high volatility sectors such as storage chips, which have weak linkage with the global AI hardware market, and the probability of being directly hit is much smaller. Morgan Stanley mentioned that August to September may be a rebound window for Hong Kong stocks, and it is recommended to increase positions during this period. What they value is not how high Hong Kong stocks can rise, but how little they fall during this period. There are several reasons, each of which is valid. First, the pressure on Internet profitability is easing. In the past few years, platforms have been fiercely subsidizing and engaging in price wars in order to attract users, resulting in a tight squeeze on profits. In mid April this year, regulatory tightening and low price competition cooled down the price war, sealing off the room for further deterioration of profits. The concerns about AI investment are also easing, and big models are gradually being implemented in search, e-commerce, and advertising. Money is no longer like throwing it into the water without making a sound. Secondly, the market has already partially digested the pressure of lifting the ban. Since 2026, the IPO financing of Hong Kong stocks has reached 41.5 billion US dollars as of July 30th. The unlocking scale in the second half of the year is very large, and September may be the month with the highest H-share unlocking market value in the past five years. But looking back at the data over the past five years, the instability of the unlocking period corresponds to a decline in the Hang Seng Index. Since late May, the market has been under trading pressure, and some of those who wanted to reduce their positions have already reduced, absorbing a lot of selling orders. Thirdly, foreign investment positions are still very low. The scale of overseas stock inflows into China in 2026 is only about half of the full year of 2025, but the increase mainly comes from passive index funds, and active fund positions have not been significantly increased. Global and emerging market funds generally have a low allocation to Chinese and Hong Kong stocks, and have adjusted their positions back to the benchmark from low allocation. The required amount of funds is not large, and the buying threshold has actually been lowered. The valuation is indeed cheap. As of July 28th, the price to earnings ratio of Shanghai and Shenzhen 300 for the next 12 months is about 13.7 times, while MSCI China is about 10.7 times, with the former being about 30% higher than the latter. Hong Kong stocks are also lower than major markets in the United States, Japan, and Europe. The target given by Morgan Stanley is not considered aggressive. Based on the price on July 29th, the Hang Seng Index will reach 28400 points by June 2027, an increase of about 10%. The state-owned enterprise index is 9900 points, with a potential of about 15%. MSCI China 91 points, with a space of about 19%. These goals are based on reducing profit pressure and restoring valuation, not on skyrocketing profits or capital flooding. Although the Hong Kong stock market is not a comprehensive bull market, it is also a round of recovery. Consumption and investment are weak, and profit forecasts have not stopped being lowered. Whether the rebound can reach the end of the third quarter depends on whether the Internet performance continues to improve and whether overseas funds are replenished. But the combination of several pressures being simultaneously reduced has indeed emerged now. If you still only focus on the US stock market at this time, you may miss a period of more certain repair market.