Why Xpeng’s Stock Could Lead the Next Leg of Hong Kong’s Rally

Hong Kong’s Rally and the Rotation into Beaten-Down Autos

Hong Kong’s equity market has staged a vigorous recovery in July, with the Hang Seng Index climbing from around 23,000 at the start of the month to close at 25,807.92 on 29 July – a fresh high for this rebound – on daily turnover exceeding HK$310 billion. The rally has been driven by a rotation of capital: early-month surges were led by AI and internet heavyweights such as Alibaba and Xiaomi, but as valuations in the AI hardware chain become stretched, money is now flowing into sectors that have lagged, notably consumption and autos.

Electric vehicle stocks suffered a bruising first half of 2026. Xpeng’s share price slid from HK$93.15 in September 2025 to HK$50.65 by end-June, a drop of over 45%, while Li Auto, Nio and BYD posted similarly steep declines. Deutsche Bank noted that Xpeng’s deliveries fell 12% year-on-year in Q1 and 4% in Q2, turning positive only in June (+16% y/y), mirroring the sector’s overall demand weakness. Now, however, a combination of policy signals, foreign inflows and short-covering is reviving risk appetite, and the car sector – a classic proxy for consumer confidence – is drawing renewed interest.

Supporting the rotation is a tangible improvement in China’s economy. The official manufacturing PMI rose to 50.3 in June, re-entering expansionary territory, with the new orders sub-index jumping 1.3 points to 51.2 and new export orders climbing back above the 50-threshold. Medium-sized enterprises also moved back into expansion, and the non-manufacturing PMI edged up to 50.2, driven by stronger service and construction order books. These data points have given substance to the “economy bottoming, earnings recovering” narrative, convincing overseas long-term investors to return to Hong Kong equities.

What Xpeng’s High Beta and ‘Physical AI’ Pivot Mean for Investors

Macro Tailwind: Policy Support and Economic Recovery

The rally’s foundation is a rare alignment of policy and liquidity. The People’s Bank of China signalled higher allocations of foreign reserves to Hong Kong assets, while foreign capital has been steadily returning. Combined with the short-squeeze triggered by heavy bearish positioning earlier in the year, the market is experiencing a “policy-floor plus liquidity-floor” moment that historically attracts long-term money. The PMI data – especially the broad-based improvement in new orders – strengthens the case that Chinese corporates are on the cusp of an earnings recovery, a prerequisite for a sustained revaluation of beaten-down cyclical sectors like autos.

Xpeng’s High Beta: Amplifying Upside in a Risk-On Rotation

Within the EV space, Xpeng stands out for its volatility. Morgan Stanley estimates its beta at 1.6x, markedly higher than the 0.5–1.0x typical of peers (Nio ~0.9–1.26x, Li Auto ~0.54–0.94x, BYD ~0.34–1.57x). A beta of 1.6 means Xpeng’s stock is likely to magnify any sector-wide move. Indeed, Xpeng and Nio have a monthly return correlation of 0.63, highlighting that both act as “high-attack” names that lead when risk appetite returns. As capital shifts from defensive large-caps to recovery plays, Xpeng’s sensitivity to market sentiment can translate into outsized gains – but it also makes the stock vulnerable if the rally fades.

Beyond Cars: The ‘Physical AI’ Story as a Valuation Catalyst

The Xpeng of 2026 is no longer just a carmaker. At its recent Munich global launch, the company outlined a “Physical AI” strategy spanning humanoid robots, flying cars and Robotaxi services. The VLA 2.0 autonomous driving architecture is slated for European deployment by 2027. Robotaxi testing is already underway in Guangzhou, with overseas operator partnerships being explored. Humanoid robots will be deployed in Xpeng’s own stores later this year before expanding into international retail networks. While these initiatives are early stage, they provide a narrative that could justify a higher valuation multiple – effectively adding a technology-services layer to the traditional auto manufacturing base. If any of these ventures gain traction, Xpeng’s re-rating could be more than just a cyclical bounce.

Positioning for Xpeng’s Potential Re-Rating

• Monitor delivery data for Q3. June’s +16% year-on-year bounce needs to be sustained; weekly or monthly sales figures from industry trackers will be a key signal of whether demand recovery is real.
• Track tangible progress on Robotaxi and robots. The Guangzhou Robotaxi tests and the in-store robot deployments are concrete milestones; any partnership announcements or regulatory approvals would provide catalysts beyond the pure auto cycle.
• Respect the beta. Xpeng’s 1.6x beta means a reversal in broader market risk appetite could inflict a disproportionate hit. Position sizing or the use of stop-losses should account for this amplified volatility.
• Watch the macro leading indicators. The PMI new-orders trend and the pace of southbound and foreign inflows are the best early gauges of whether the “economy bottoming” thesis holds; a renewed dip in PMI would likely halt the rotation.
• Competitive dynamics still matter. While the rotation lifts all boats initially, further price wars or disappointing new model launches from Nio, Li Auto or BYD could cap sector-wide multiples, especially if Xpeng’s own delivery ramp disappoints.