High profits but suffering a brutal wipeout! Hong Kong tech and internet stocks plummeted 14% in a single day, and legendary IP stocks dropped nearly 30% over two days. Is the valuation logic completely changing, or are foreign investors concentrated in selling off with their feet?

Why Are Hong Kong Stocks with Strong Earnings Being Abandoned by the Market?

In late March, the Hong Kong stock market experienced extreme fluctuations where “earnings diverged from stock prices,” with companies like Kuaishou, Pop Mart, and Alibaba all reporting impressive earnings, yet collectively faced a significant sell-off after their earnings announcements. On March 26, Kuaishou fell over 14% in a single day, Pop Mart plummeted over 22% yesterday and then dropped over 10% today; Alibaba saw its stock decline over 6% on March 20 following its earnings report released on the evening of March 19.

Why do these Chinese concept giants experience significant earnings growth, yet their price-to-earnings ratios remain historically low, with the market still giving extreme pricing due to “growth not meeting expectations”? This is not merely a case of individual stocks being hammered; rather, it reflects a concentrated manifestation of the current reconfiguration of the overall valuation system in the Hong Kong stock market, where a pricing logic dominated by foreign capital holds unprecedented stringent requirements for the quality of growth.

1. Strong Earnings Struggles Against Selling Pressure; Quality Hong Kong Stocks Face Valuation Cuts

In mid to late March, core tech and consumer stocks in the Hong Kong market faced sharp declines, resulting in an unusual trend where “earnings increased as stock prices fell.”

On March 26, Kuaishou-W (01024.HK) plummeted 14.04% in a single day, closing at HKD 45.6, with a market capitalization evaporating by over HKD 30 billion in just one day;

Pop Mart (09992.HK) experienced an even harsher decline, dropping 22.51% after its March 25 earnings report and then falling another 10.46% on March 26, with a cumulative decline of nearly 30% over two trading days, leading to a market cap loss of over HKD 86 billion;

Alibaba-W (09988.HK) saw a 6.29% drop on the following day after releasing its earnings report on the evening of March 19, closing at HKD 123.7.

On the same day, Xiaomi Group-W (01810.HK) saw its stock price drop 8.59% the day after its spring product launch on March 19, closing at HKD 33.2, with a market cap loss of over HKD 60 billion, primarily because the market believed its new product order data did not meet expectations.

From a fundamental perspective, all three companies delivered solid earnings reports. However, despite the highlights in their performances and their relatively low price-to-earnings ratios, they still could not escape the concentrated sell-off.

Kuaishou is projected to achieve a net profit of HKD 18.6 billion in 2025, a year-on-year growth of 21.4%, with an adjusted net profit of HKD 20.6 billion, growing 16.5% year-on-year, remaining in a stable profit cycle; Pop Mart anticipates revenue of HKD 37.12 billion in 2025, a year-on-year increase of 184.7%, with parent net profit of HKD 12.78 billion, soaring 308.8% year-on-year, showing a significant leap in profit scale; Alibaba’s total revenue for the third quarter of fiscal year 2026 is projected at HKD 284.843 billion, up 2% year-on-year. If excluding disposed operations like Intime and Gaoxin Retail, the actual year-on-year growth is 9%, maintaining a stable base. Although Xiaomi did not release earnings simultaneously, it announced over 410,000 car deliveries in 2025, far exceeding its initial target. The performance of its newly launched SU7 at the spring release event, with 15,000 units locked in within just 34 minutes, again fell short of the so-called “market expectations,” acting as a trigger for the stock price’s sharp decline.

2. Three Core Logic Points Triggering the Sell-off; Quality of Growth Becomes a Key Market Consideration

The collective decline of quality stocks in the Hong Kong market is a concentrated pricing mechanism reflecting flaws in growth quality, with the core logic focusing on three main aspects:

1. Concerns Over Growth Structure, Key Indicators Falling Short of Market Expectations

Kuaishou’s core issue lies in a decline in both its user base and e-commerce growth rate, with monthly active users in Q4 2025 growing only 0.7% year-on-year and daily active users decreasing by 8 million; e-commerce GMV growth has plummeted from high levels to 12.9%. Meanwhile, the company has announced a significant increase in capital expenditure in the AI sector for 2026, raising expectations for short-term profit pressures; Pop Mart is trapped in a dependency on a single IP, with over 30% of its revenue relying on the LABUBU IP, lacking the ability to support new IPs, and management has provided guidance of only 20% growth for 2026, significantly below previous market expectations, directly compressing its growth potential; Alibaba faces pressures from slowing revenue growth and a significant drop in profits, with intensified e-commerce competition and increased AI investments further undermining market confidence.

2. A Complete Shift in Valuation System from Growth Premium to Certainty Premium

The Hong Kong stock market’s tech and consumer sectors are undergoing a fundamental reconfiguration of valuation logic. Previously, the core of pricing for growth stocks was based on “growth rates,” allowing for high valuation premiums even amidst profit volatility; however, the current market pricing focus has shifted to “growth certainty.” Even if a company achieves substantial profit growth, as long as there are structural flaws in growth or risks of future growth declines, it will be abandoned by capital. This shift in the valuation system has directly led to companies reliant on a single growth engine facing a “Davis double kill,” where growth slows under high bases.

3. External Liquidity Tightening, Global Risk Appetite Suppresses Hong Kong Stock Performance

The recent hawkish tone from the Federal Reserve has delayed expectations for interest rate cuts in 2026, with the 10-year U.S. Treasury yield remaining at a relatively high level of 4.32%, directly compressing the valuation space for growth stocks in the Hong Kong market; coupled with the ongoing escalation of geopolitical conflicts in the Middle East, with Brent crude oil nearing USD 105 per barrel raising concerns about stagflation, the global risk appetite for assets has generally declined, with foreign capital continuously withdrawing from Hong Kong stocks amid rising risk aversion, further amplifying market volatility.

3. Underlying Problems of the Hong Kong Market; Foreign Capital Pricing Power Intensifying Extreme Market Fluctuations

The collective sell-off in Hong Kong stocks is underpinned by structural issues within the market itself, which is also the core reason for the wrongful slaughter of quality assets:

1. Foreign Capital Dominating Transaction Structure, Funding Behavior Becoming Extreme

From the trading structure of the Hong Kong Stock Exchange, about 45%-50% of transactions are dominated by foreign capital, with the Stock Connect accounting for about 25%-28%, and local and other funds making up about 25%. Foreign capital is highly sensitive to global macro policies and geopolitical risks, and once external environments fluctuate, funds tend to adopt a “one-size-fits-all” selling strategy. Even if a company’s fundamentals are robust, it can still be indiscriminately slaughtered, even worsening in a vicious cycle.

2. Low PE Is Not an Absolute Safety Net, “Pseudo-Low Valuation” Becomes a Value Trap

Current capital views the low price-to-earnings ratios of companies like Kuaishou and Pop Mart as not undervalued, but rather a result of slowing growth under high bases. The current market judges low valuations without high-quality growth or diversified growth curves as “pseudo-low valuations”; once institutions revise down growth expectations, valuations will continue to decline, and low price-to-earnings ratios will not serve as a safety net for stock prices.

3. Companies’ Expectation Management Issues Amplify Market Sentiment Volatility

All companies experiencing this round of declines have expectation management problems, with Kuaishou failing to signal declining user data and increased capital expenditure in advance, Pop Mart’s earnings guidance diverging too significantly from market expectations, and Alibaba’s profit drop exceeding market predictions. The cognitive gap between companies and market institutions further amplifies capital’s panic sentiment, leading to concentrated sell-off scenarios post-earnings reports.

4. Hong Kong Stock Investment Logic Changes; Certainty Becomes the Core Theme

In the context of a reconfigured valuation system, the investment logic in the Hong Kong stock market has completely transformed, requiring investors to adjust their strategies in a timely manner:

First, shift from pursuing high growth rates to focusing on high certainty, prioritizing investments in companies with stable cash flows, controllable capital expenditures, and high dividends, while avoiding those reliant on a single business or with unsustainable growth;

Second, pay close attention to growth quality rather than merely profit growth rates, further raising the standards for revenue structure, user data, and gross margins;

Third, be wary of liquidity risks under foreign capital dominance, avoiding blind bottom fishing in seemingly low PE stocks, and focusing on quality assets backed by real performance and diversified growth engines.

Conclusion

As we reach the end, should the sharp declines of Kuaishou, Pop Mart, and Alibaba, as well as Xiaomi’s post-launch expectations, lead to the belief that the fundamental values of these companies have deteriorated or even need to be treated at a discount of 80-90%? In the current overall challenging environment, these quality companies that continue to generate value and profits, especially when compared to the valuations of certain grand narrative tech stocks, may have even more pronounced advantages.

The market may moderately speculate on expectations, and capital may temporarily engage in concentrated sell-offs, but is it not an exaggeration of emotions and an overreaction to violently suppress high-quality enterprises with solid performances under the pretense of “peak growth” and “slowing second curves”?

Looking at the longer time dimension, I believe these companies possess clear business layouts and core competitiveness, and I am confident that the entrepreneurs behind these companies have the ability and vision to break through and rise again. After weathering the short-term emotional fluctuations and the pains of growth bottlenecks, the quality companies in the Hong Kong stock market will all have the opportunity to prove their value and achieve further brilliance in the future.

Chinese Assets, Soar Upward!