$TENCENT(00700.HK) $XTALPI(02228.HK) A letter from a professional trader friend:

My understanding of the current market:

# The Hong Kong market surged from HSI = 18,800 in mid-January to HSI = 24,780 in two months, a spike of 31.8%. During the same period, the Hang Seng Tech Index rose from 4,220 to 6,105, a spike of 44.6%. The accumulated profit-taking pressure in the market is huge.

# The main drivers of this Hong Kong rally are southbound capital and Asian hedge funds, with little involvement from long-term U.S. and European funds. Both GS and MS mentioned this on Monday. The capital flowing into Hong Kong is relatively short-term and primarily aims for quick profits.

# Recent market adjustments show significant selling by southbound capital. I noticed that short interest in major stocks hasn’t increased but rather decreased, indicating this decline is still a correction.

# Next, we need to watch the A-share market, which has been much weaker than Hong Kong over the past two months. If the A-share market stabilizes and rises, Hong Kong will likely continue to rally. Otherwise, further downside is highly possible.

# For now, I’ll maintain a half-position strategy. Since the A-share market has government "support," I’m not bearish on Hong Kong.