Earnings will be the key to watch out for, especially going into the second quarter. Financials and internet platform companies are two index heavy sectors. What we are looking for going into the Q2 results would be a confirmation of what we have just seen in the first quarter: the peak of competition and the losses has been narrowing. That will probably start making the market look into earnings upgrades rather than downgrades.

Currently market is forecasting Hang Seng Index earnings growth around 10% or low teens, whereas the onshore A-share market is looking for earnings growth north of 20%. In the onshore market, we have a lot more tech hardware and broader TMT including industrials, energy storage that are all spending across the whole AI spectrum.

Things have been changing. In the IPO pipeline, we do have a few high profile AI chips coming in the offshore market. Hong Kong Stock Exchange pipeline has more than 400 active applications. Over the past six months, we see a lot of leading AI tech names coming on board. Upcoming Hang Seng Tech Index rebalancing includes foundation models companies. It will take time, but at the moment the broader TMT composition has a lot bigger share in the onshore A-share market of more than 70% of the overall market cap.

We see rapid recovery expansion of growth in AI related sectors, not just hardware but all the way to the upstream line. The materials sector is having the largest earnings upward revision momentum in both onshore and offshore. On the other hand, the relatively slow recovery will be on the demand side, which has been confirmed from the recent retail sales number. Going into the July Politburo meeting, it will be a test or confirmation by the policymakers how much patience they have.