[ET Net News Agency, 06 August 2025] US equities rose before retreating on Tuesday. Hong
Kong stocks also opened weaker, but BYD Electronic (00285) and several major tech giants
led gains during the session, allowing the market to hold onto its advance. By midday, the
HSI was at 24,947, up 44 points or 0.2 per cent, with main board turnover exceeding HKD
120.6 billion. The Hang Seng China Enterprises Index was at 8,948, down 2 points or less
than 0.1 per cent. The Hang Seng Tech Index was at 5,522, up 1 point or less than 0.1 per
cent.

"HSI struggles with 25,000 level, southbound flows show speculative signs"

After two consecutive days of gains, the HSI was volatile and slightly soft this
morning. Cheung Chi Wai, a joint managing director at Prudential Brokerage Ltd, told ET
Net News Agency that the overnight release of the US July ISM Non-Manufacturing PMI came
in below expectations, with all three main US indices falling and weighing on Hong Kong
stocks early on. Seven departments including the People's Bank of China issued guidance on
financial support for new industrialisation, emphasising stronger medium-to-long-term loan
support for 5G, industrial internet, and digital infrastructure. However, market reaction
was muted, as investors remain cautious amid threats from Trump to impose high tariffs on
imported chips and pharmaceuticals. Cheung noted that the market currently lacks positive
catalysts. The HSI reached 24,925 yesterday (5 Aug) and touched 24,954 today before
reversing, with the 25,000 mark acting as resistance for two consecutive days. Cheung
pointed out that over the past two years, whenever the 14-day RSI approached 80, the HSI
tended to pull back. In contrast, a rebound often occurs when the RSI falls to around 50.
The RSI is currently still near 50, so Cheung remains positive on the HSI in the medium to
long term, but expects the index to consolidate around the 20-day moving average (about
24,879) for now.
Regarding recent fluctuations in southbound flows, there was a net outflow of HKD 18
billion on Monday (4 Aug), the largest in a month. This reversed yesterday (5 Aug) with a
net inflow of HKD 23.4 billion, the biggest since 9 Apr. Cheung said this pattern shows an
increase in speculative behaviour among southbound funds. In the past, when the HSI was
around 22,000, southbound investors were prepared to hold for the medium to long term, but
given recent strong gains, some investors may now be taking profits at higher levels and
waiting for a pullback before re-entering.

"Impact of food delivery price war not fully reflected, Yum China's full-year new store
target slightly ambitious"

Yum China (09987) announced its interim results, with second-quarter profit at USD 215
million, up 1.4 per cent, earnings per share at 58 US cents, and a quarterly dividend of
24 US cents per share, up 50 per cent from the 16 US cents paid in the same period last
year. Interim profit was USD 507 million, up 1.6 per cent, with earnings per share of USD
1.36, and total revenue up 2 per cent.
Second-quarter total revenue grew 4 per cent to USD 2.8 billion, and system sales rose 4
per cent, an improvement from Q1, mainly thanks to a 4 per cent contribution from net new
stores and 1 per cent same-store sales growth. The group added a net 336 new stores in Q2.
Operating profit rose 14 per cent to USD 304 million, a record for the second quarter.
Core operating profit also grew 14 per cent. The operating profit margin was 10.9 per
cent, up 1 percentage point, also a new second-quarter high, thanks to growth in
restaurant margin and lower administrative expenses. The restaurant margin rose to 16.1
per cent, mainly due to lower food and packaging costs, property rents, and other
operating expenses.
Yum China shares opened down 6 per cent this morning and mostly remained about 5 per
cent lower. Cheung said that while the group's first-half results were decent, the
persistent problem of consumption competition in Mainland China remains unresolved. The
negative impact of the price war among the three major food delivery platforms has not yet
been fully reflected, and is expected to become more apparent in the second half. In
addition, much of the group's first-half revenue growth relied on new store openings. The
group aims to add a net 1,600 to 1,800 stores this year, which is relatively ambitious.
With 247 new stores in Q1 and a total of 583 in the first half, this means at least 1,017
to 1,217 new stores need to be added in the second half. Cheung believes it is still too
early to say whether the company can meet this target.
Cheung also noted that Yum China's share price fell to HKD 330 in June, and was pushed
up to a high of HKD 389 last month, partly pricing in the first-half results in advance.
Therefore, it is understandable that the share price retreated after the results were
announced. He expects the stock's short-term trend to remain weak, and does not rule out a
return to the June low of HKD 330.