Hong Kong internet stocks displayed strength against the broader market trend on July 2nd, with leading heavyweight stocks rallying collectively. Xiaomi Group-W surged over 4%, while Meituan-W and Kuaishou-W saw intraday gains exceeding 7%, closing up 3.4% and 2.5% respectively. Alibaba-W advanced nearly 2%. The Hong Kong Internet ETF (513770), which holds a concentrated position in these internet leaders, saw its on-exchange price spike over 5% at one point, closing 2.8% higher and reclaiming its 10-day moving average.

This sector's strong performance likely stems from a confluence of positive factors. On the liquidity front, overnight U.S. data on the ADP employment report and manufacturing PMI indicated signs of a cooling economy, tempering market expectations for further Federal Reserve rate hikes. The sharp rise in U.S. internet giant Meta also provided a positive reference point.

Regarding policy, the Beijing Municipal Market Supervision Administration recently pioneered a national platform for dialogue aimed at guiding the platform economy towards healthy competition. Key consensus was reached on areas like optimizing subsidies, where platforms will reasonably allocate subsidy funds, set scientific caps on order discounts, and regulate irrational large-scale subsidies to conduct promotional activities more appropriately.

On the industrial front, leading internet companies reached a milestone in their AI strategies. Meituan recently officially released and open-sourced its new-generation foundational large language model, LongCat-2.0. With a total of 1.6 trillion parameters, it is the first large-scale language model in China to complete the entire pre-training and inference process using a cluster of 50,000 domestic AI accelerator cards. Additionally, Kuaishou's AI subsidiary, Kling AI, is nearing the completion of a $3 billion funding round with participation from Tencent. Post-funding, Kling AI's valuation is expected to reach $18 billion.

Analysts point out that the global AI industry trend is currently shifting towards the application layer and platforms with significant user access value. Internet platforms, with their billions of users, vast multimodal data assets, and complete ecosystems including cloud and payments, represent core scenarios for AI commercialization. The market anticipates major internet firms will successively push for AI commercialization, and the path to monetization leveraging their platform scenarios is promising. This could lead to a re-rating of the sector's valuation based on the value of AI application gateways.

The current valuation of the Hong Kong internet sector is near historical lows, with a P/E ratio around 17.69 times, sitting at approximately the 0.7th percentile over the past decade, suggesting a bottom may be largely established. A clear trend of capital rotation from high to low valuations is evident globally, with short-covering effects becoming pronounced. The U.S. software sector (IGV) has rebounded about 30 percentage points from its lows, as the market narrative shifts from "AI losers" to AI empowering and enhancing industrial competitiveness. This U.S. market dynamic could catalyze a valuation recovery for the Hong Kong internet sector.

Monitoring the Re-rating of Hong Kong Internet Leaders Amidst AI Transformation

The Hong Kong Internet ETF (513770) and its feeder funds (Class A 017125; Class C 017126) passively track the CSI Hong Kong Stock Connect Internet Index. Its top ten holdings aggregate tech giants like Alibaba-W and Tencent Holdings alongside AI application companies across various sectors, offering significant exposure to leading players. The ETF offers intraday T+0 trading with good liquidity.

Alternative for Lower Volatility Exposure to Hong Kong Tech

For investors bullish on Hong Kong technology but seeking to reduce volatility, consider the market's first Hong Kong Large Cap 30 ETF (520560). It employs a "tech + dividend" barbell strategy, holding both high-growth tech stocks like Alibaba and stable, high-dividend payers from sectors like banking and insurance, making it an ideal core holding for long-term Hong Kong market allocation.

Investors are reminded that recent market volatility may be elevated, and short-term price movements are not indicative of future performance. Investment decisions should be made rationally based on individual financial circumstances and risk tolerance, with careful attention to position sizing and risk management.