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Hong Kong Stocks at 23,000: The Discount Store Asked to Discount Forever
The Fourth Wall of the Market
The most painful thing about Hong Kong stocks is not that nobody buys. It is that everyone walks in ready to bargain. The Hang Seng Index around 23,000 is like an old discount store that has been open for years. Signs outside promise “low valuation,” “high dividends,” “AH discount,” and “valuation repair,” and the store is not actually short of merchandise. Chinese banks, telecoms, energy companies, and central-enterprise dividend names are still there; internet platforms still have users, cash flow, and buybacks; exchanges, insurers, and consumer stocks can occasionally polish the display windows. But when customers enter, their first question is usually not “these are good products,” but “can you make it cheaper?”
As of July 7, 2026, the Hang Seng Index was still hovering around 23,000 to 24,000, a long staircase away from its 2018 historical high of 33,484. This position is very Hong Kong: the daily chart can rally, the monthly chart looks half-asleep, and once the historical chart is pulled open, someone on the investment committee asks the old question again: is this really a value re-rating, or merely a discount-store promotion?
Hong Kong Financial Secretary Paul Chan said in his 2026–27 budget speech that Hong Kong wanted to use “innovation and finance to drive high-quality, inclusive growth.” He also noted that a strong economy and capital market in 2025 had increased tax revenue, with the operating account returning to surplus earlier than expected. The words sounded like a store manager standing at the entrance announcing that business had recovered. The market nodded, then continued examining the price tags with a magnifying glass.
I. Cheap Initially Resembled Temptation; Talked About Long Enough, It Resembled Identity
Hong Kong stocks' biggest selling point over the past few years has been that they were cheap.
The word was initially very tempting. Low P/E, low P/B, high dividends, AH discounts, and compressed valuations for internet leaders all looked clean in an investment-committee presentation. They came with numbers, comparisons, mean reversion, and historical percentiles. Fund managers looking at the table could easily feel a familiar professional impulse: perhaps this market had been sold down too far.
The problem was that the word cheap changed flavor when repeated for too long.
At first, cheap looked like an opportunity. Later, cheap became the market's way of pricing the market's identity. Eventually, investors began asking an impolite question: if a market remains cheap for a long time, is it undervalued, or does the market simply refuse to pay the original price?
Chan said in the 2026 budget that the revised estimate for government stamp-duty revenue in 2025–26 was HK$99.5 billion, about HK$31.9 billion above the original estimate, because of a strong stock market and faster economic growth. In the same passage, he noted that the residential property market had only just stabilized, commercial property remained relatively weak, and land revenue stayed low. The official language captured the awkwardness of Hong Kong stocks: the market had turnover, the government had tax revenue, but confidence in asset prices had not returned to the original price zone along with them.
Hong Kong stocks were like a designer jacket. The fabric was still there and the label was still there, but the market had returned it several times. Whenever the clerk said, “This used to be expensive,” the customer replied, “So what is the discount now?”
Cheap was originally a margin of safety.
In Hong Kong, it slowly became an identity card.
II. First Layer of Discount: Foreign Capital Dared Not Pay the Original Price
Hong Kong stocks ostensibly trade on P/E multiples. In reality, they trade on a psychological scorecard that has been repeatedly marked down.
Foreign investors are not unaware that the market is cheap. In many cases, they know perfectly well that it is cheap. The real problem is that cheapness does not offset uncertainty. China's macroeconomy, geopolitics, the property chain, memories of platform regulation, dollar interest rates, Hong Kong dollar funding costs, and earnings visibility sit like a row of small notes behind the clerk, each saying: another 10% off.
Hong Kong Monetary Authority Chief Executive Eddie Yue warned in a July 2025 article that when the banking system's aggregate balance fell to a level at which Hong Kong dollar supply and demand were broadly balanced, Hong Kong interbank rates would rise toward dollar interest rates. He also reminded residents to assess their financial conditions and risk tolerance when investing, buying property, or borrowing. Translated into the stock market, this was another source of discount. Hong Kong stocks do not stand in a windless valuation room; above them are the linked exchange-rate system, dollar interest rates, and Hong Kong dollar liquidity.
Foreign capital looking at Hong Kong stocks resembles a picky customer examining used goods. The merchandise is indeed cheap and its provenance is clear, but the customer asks why it fell so far last time, where the maintenance records are, and who will be responsible for the next policy change. Part of Hong Kong stocks' discount comes from price; another part comes from this repeated interrogation.
China Securities Regulatory Commission Chairman Wu Qing said when meeting representatives of foreign securities, fund, and futures institutions in February 2026 that the CSRC would promote capital markets toward deeper, higher-level opening; continue building a transparent, stable, and predictable market environment; and use STAR Market and ChiNext reforms to better serve technological innovation and new quality productive forces. These were the official words the market wanted to hear, but customers at a Hong Kong discount store would not normally pay after hearing one sentence. They would still wait for institutional continuity to become a habit visible across several quarters of trading.
On the surface, Hong Kong stocks' valuation is a multiple. Underneath, it is a discount rate on trust.
That is why a whole pile of stocks can look cheap while buyers still behave as if they are picking through the bottom of a warehouse.
III. Second Layer of Discount: Southbound Funds Only Bought Familiar Goods
Hong Kong stocks once looked more like a display window for foreign capital. Now they increasingly resemble mainland capital's second living room.
Southbound funds are no longer merely marginal buyers. Hong Kong Exchanges' first-quarter 2026 market update showed average daily turnover in the Hong Kong cash market reaching HK$276.7 billion, up 14% year over year. Southbound average daily turnover reached HK$122.5 billion, up 11.5% year over year, and mainland investors brought more than HK$220 billion of net southbound inflows during the quarter. This was not a drip; it was a pipe growing wider.
Once the pipe grew wider, the store shelves would be rearranged as well.
Southbound funds have their own aesthetic. They know Chinese banks, central enterprises, telecoms, and internet leaders; they also like the sense of patience supplied by high dividends. Foreign capital looks at risk premiums; southbound capital looks at familiarity and discounts. Two kinds of buyers judge the same merchandise differently, and Hong Kong beta changes flavor accordingly.
Hong Kong Securities and Futures Commission Chairman Goh Tian Lian said when releasing the SFC's 2025–26 annual report that the SFC would fulfill its dual duties as “market guardian and facilitator,” enhance investor confidence, promote capital formation, and support Hong Kong as an important financial gateway connecting the mainland and the world. In the Hong Kong discount store, the statement sounded like a store rule: Hong Kong wanted to preserve its international-market display window while also accommodating mainland capital's shopping carts.
The advantage of southbound funds is that they are willing to walk into the store when foreign capital hesitates. The difficulty lies in the same place. Regular customers usually choose familiar goods. They buy high yields, leaders, and businesses they understand. This gives Hong Kong stocks a floor, but it also gives beta a distinctly unromantic temperament.
The market says it wants to buy growth, but its hand reaches for dividends.
That sentence is not sexy, but it is very Hong Kong.
IV. Third Layer of Discount: Tech Stocks Changed from Faith Goods to Second-Hand Designer Goods
Hong Kong tech stocks used to be the store's most effective display window.
Names such as Tencent, Alibaba, Meituan, Xiaomi, JD, and Kuaishou once made Hong Kong stocks more than a market of finance, property, and cyclicals. They had users, platforms, growth, and stories that global investors could understand. Then the stories were rewritten repeatedly: platform regulation, competition, weak consumption, earnings downgrades, buybacks, and cost reduction took turns onstage. These companies still had value, but the market now looked at them like a designer bag that had been returned many times.
They were not fake.
It was simply difficult to pay new-goods prices for them again.
The Hang Seng Tech Index was still hovering around 4,500 points in early July 2026. In June 2026, MiniMax and Zhipu AI were added to the Hang Seng Tech Index, reflecting the index's expansion from traditional internet companies, consumer electronics, and software toward AI. Tech stocks had new stories, but every new story still had to pass through the old discount store's security gate.
Chan identified “AI+” as an important direction in the 2026 budget and placed the international innovation and technology center, life and health, new industrialization, and patient capital within the policy framework. The Hong Kong government was talking about the industries of the future; the market was asking when those future industries would become earnings for listed companies. Between the two languages sat the valuation table's column marked “visibility.”
The awkwardness of tech stocks today is that they must talk about growth while also handing in their cash-flow homework. The market asks about policy, competition, buybacks, AI monetization, food-delivery subsidies, cloud revenue, game approvals, and EV gross margins. Once a faith product is asked too many questions, it becomes a second-hand designer good.
It is still attractive.
Customers still want it.
They simply bargain over every scratch.
V. High-Yield Stocks Became the Discount Store's Signature Items
The underlying support for Hong Kong beta in recent years has often been found in the least glamorous places.
Chinese banks, telecoms, energy companies, and central-enterprise dividend names are like the durable goods in a discount store that do not make anyone's heart race. They do not inspire investors to tell grand stories, but they offer something concrete: cash flow and dividends. When growth stories are repeatedly interrupted, dividends are like the store's old, reliable cash register. The sound is ordinary, but it really rings.
Hong Kong Exchanges' first-quarter 2026 market update said ETF average daily turnover reached HK$40.2 billion, up 15% year over year, while turnover in the cash market remained strong. This meant Hong Kong stocks were increasingly becoming a container for capital allocation, with high yields, ETFs, leaders, and Stock Connect jointly shaping the market floor.
Yue emphasized in a July 2026 article that Hong Kong would promote its offshore RMB market and the cross-border use of RMB. He also said that, as an international financial center and offshore RMB hub, Hong Kong wanted to further strengthen the connection between the mainland and Hong Kong financial markets. This kind of financial-infrastructure language would not directly send a particular stock to its daily limit, but it would keep the water, electricity, and gas running for Hong Kong's discount store.
The victory of high-yield stocks contains a little dark humor.
They do not resemble dreams; they resemble hot tea in a waiting room. Drinking it will not change your life, but after sitting there long enough, you will eventually have a cup. When the market believes growth will arrive late, dividends become a consolation that is not beautiful, but can be placed inside a model.
The stronger Hong Kong stocks' defensive character, the more clearly it exposes the awkwardness of the growth story.
The more people gather around the dividend shelf, the more it suggests that the “high-growth new goods” aisle next door is temporarily not selling.
VI. Discount Repair Most Feared Earnings Getting Stuck in Traffic
Every Hong Kong stock rally follows a familiar script.
Valuations move first, policy expectations follow, southbound funds add a little water, foreign risk appetite warms slightly, and brokerages begin writing about a “re-rating.” A few weeks later, the market sits up straight and starts asking about earnings, consumption, property, platform revenue, bank net interest margins, and the value of new insurance business. Each time it reaches this point, the atmosphere resembles a lively dinner party where someone suddenly brings out the bill.
Chan said in the 2026 budget that the 2025–26 operating account was expected to record a surplus of HK$51.3 billion, and that the consolidated account had also returned to balance earlier than originally expected. At the same time, he noted that land revenue remained low and that the capital account was still in deficit because of spending on the Northern Metropolis and other public works. The official fiscal statement looked very much like Hong Kong stocks themselves: some areas had recovered better than expected, while some old wounds had not fully scabbed over.
Wu said in 2026 that the CSRC would use STAR Market and ChiNext reforms as important levers to deepen comprehensive investment and financing reforms, serve technological innovation and new quality productive forces, and continue moving capital markets toward higher-level opening. For Hong Kong stocks, these policies were winds from far away: they could move sentiment, but might not blow into every Hong Kong company's income statement right away.
Hong Kong beta's difficulty is that rallies are common, while proof of revenue takes time.
Cheapness can help a stock price climb up from the floor. Earnings determine whether it can stand there for a while. Valuation repair most fears earnings getting stuck in traffic, because customers at the discount store already know this routine. When the store manager puts up another “spring re-rating” poster, they first ask: is there any new merchandise this time?
If there is no new merchandise, everyone wanders around, buys some high-yield names, picks up a few leaders, and puts “long-term bullish” back outside the shopping basket.
VII. Conclusion: Cheap Was Not the Answer; Who Was Willing to Pay the Original Price Was
Hong Kong stocks no longer need to prove that they are cheap.
They have proved it for too long.
The Hang Seng Index can rally, beta can repair, southbound funds can continue to enter, and policy can continue to support sentiment. The real difficulty is not in those places. The truly difficult question is when the market will be willing to cancel the long-term discount.
Hong Kong stocks are like a discount store that everyone knows by heart. Foreign capital comes in to nitpick, southbound capital comes in for familiar goods, local capital collects dividends, tech stocks work hard to tell new stories, and high-yield stocks make sure customers do not leave. Every year the store manager changes the posters and announces that this time is a valuation re-rating. Customers stand at the entrance, look at the sign around 23,000, and do not reach for the original-price tag. They pick up a calculator first.
Goh Tian Lian said when releasing the SFC's 2026 annual report that the SFC wanted to enhance investor confidence, promote capital formation, and consolidate Hong Kong's position as a financial gateway connecting the mainland and the world. Yue also said in 2026 that Hong Kong would promote RMB internationalization and cross-border usage, strengthening its role as an offshore RMB hub and international financial center. These are all pieces of infrastructure for Hong Kong's discount store. Doors, lights, pipes, and payment systems are being repaired. But whether customers are willing to check out at the original price is not something renovation alone can solve.
So this article does not need to call a bull market, nor declare Hong Kong stocks dead.
Hong Kong stocks' real problem is simple and cruel: they do not lack merchandise; the market has trained them into a habit of bargaining forever.
Discounts can bring rebounds.
Dividends can buy time.
Policy can bring sentiment.
A true bull market will have to wait for customers to walk into this old store and, for the first time, not ask “how much cheaper can it get?” They will have to be willing to admit that this item can be bought without waiting for clearance prices.
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