Hong Kong stocks opened higher but closed lower on Tuesday, with all three major indices finishing slightly in the red. A blowout earnings report from NVIDIA and its bullish forward guidance ignited market sentiment, driving a broad rally in science and technology chip ETFs, while Hong Kong Stock Connect auto-related ETFs declined amid a double squeeze of weak domestic demand and compressed profit margins. The Hang Seng Index fell 0.34% to 25,565.74 points, with full-day turnover reaching HK$233.515 billion, while the Hang Seng Tech Index slipped 0.13% to 4,620.29 points.

Among the largest Hong Kong ETFs by asset size, Tracker Fund of Hong Kong (02800) closed 0.15% lower at HK$26.1, Hang Seng China Enterprises (02828) rose 1.75% to HK$87.4, and Hang Seng High Dividend Yield (03466) dipped 0.55% to HK$19.95.

Sector performance: AI chip chain gets a boost

The stellar results and strong outlook from NVIDIA lifted the entire AI compute hardware supply chain, with science and technology chip ETFs climbing across the board. By the close, the National Alliance Science and Technology Chip Design ETF (588780.SH) surged 5.93% to RMB 1.00, the Harvest Science and Technology Chip ETF (588200.SH) advanced 4.79% to RMB 1.203, and the Huaan Science and Technology Chip ETF (588290.SH) gained 4.53% to RMB 1.177.

Driven by NVIDIA's better-than-expected fiscal Q2 2027 results—revenue hit $96.2 billion, up 106% year-over-year, with a first-ever growth outlook of roughly 70% for fiscal 2028—the logic of persistently strong AI compute hardware demand received further validation. The company's CFO also emphasized that supply will remain a bottleneck constraining growth at least through fiscal 2028.

On the industry front, Guotai Haitong noted that the memory sector has shifted from a beneficiary of AI compute investment to a critical bottleneck for AI infrastructure buildout. The structural shortage driven by AI demand now spans the entire supply chain, with the supply-demand gap still widening. Guosen Securities pointed out that AI compute construction continues to crowd out resources across the electronics manufacturing ecosystem, with wafer foundry, memory, PCB, passive components, and analog chips all seeing elevated activity. The valuation recovery in the memory segment is expected to open up further upside for the broader price-increase chain.

Auto sector faces dual headwinds

Hong Kong Stock Connect auto-related ETFs retreated as the sector contends with both sluggish domestic demand and severe margin pressure. By the close, the Huabao Hong Kong Stock Connect Auto ETF (520780.SH) fell 1.66% to RMB 0.83, the E Fund Hong Kong Stock Connect Auto ETF (159121.SZ) declined 1.59% to RMB 0.743, and the GF Hong Kong Stock Connect Auto ETF (520600.SH) dropped 1.35% to RMB 1.024.

Bernstein Research recently published a report indicating that China's domestic auto demand in 2026 will be weaker than expected, forecasting full-year domestic retail sales of 20 to 21 million units, a year-over-year decline of 11% to 13%. Meanwhile, Cui Dongshu, secretary-general of the China Passenger Car Association, highlighted in a note that industry profits are being severely squeezed by upstream costs. While upstream lithium carbonate prices have doubled, lithium battery export prices continue to fall, creating a situation where automakers without in-house battery production face a serious lack of pricing power. Data shows that auto industry profits fell 20% year-over-year in the January-to-July period of 2026, with a profit margin of just 3.6%—far below the 6.5% average for downstream industrial enterprises.

Institutional outlook

Morgan Stanley believes Hong Kong stocks are likely to regain momentum around late September. A dense calendar of tech events in September—including Tencent's Global Digital Ecosystem Summit and WeChat AI launch, Alibaba's Qwen 4.0 upgrade and Apsara Conference, Baidu's potential dual primary listing and inclusion in Stock Connect, and new model releases from MiniMax and Z.AI—is expected to provide both sentiment and fundamental support for the Hong Kong internet sector.

From a capital flow perspective, foreign ownership of A-shares as a percentage of both total market cap and free-float market cap has not shown a notable recovery, with underweight positioning persisting. In Hong Kong, the underweight stance of global and emerging market active funds toward China/Hong Kong narrowed during the July pullback in other markets, but active capital flows overall continue to trend toward net outflows.

New ETF listings

The Harvest Value ETF (158001.SZ) debuted on its first trading day, closing 0.4% lower at RMB 1.003 with turnover of RMB 60.2295 million. The fund tracks the CSI Guozheng Value 100 Index, with a portfolio highly concentrated in low-valuation, high-dividend value sectors such as home appliances and banking, while also maintaining balanced exposure to leading companies in communications, resources, and manufacturing.

The Harvest Medical ETF (158010.SZ) also launched, closing 0.4% higher at RMB 0.996 with turnover of RMB 13.8245 million. Tracking the CSI Medical Index, the fund's portfolio is heavily weighted toward leaders in medical devices, healthcare services, and medical informatization.

The E Fund Chemical ETF (158017.SZ) made its market debut, gaining 2.21% to close at RMB 1.019 with turnover of RMB 210 million. Tracking the CSI Sub-Industry Chemical Thematic Index, the fund focuses on A-share listed companies in the chemical industry, covering chemical raw materials, chemical products, chemical fibers, pesticides, and fertilizers.

The Yongying Battery ETF (158019.SZ) began trading as well, closing 1% lower at RMB 0.989 with turnover of RMB 28.7225 million. Tracking the CSI Battery Thematic Index, the fund targets A-share companies along the battery supply chain, spanning power batteries, energy storage batteries, battery materials, and battery equipment.