Multiple funds heavily buying the dip in Hang Seng Tech! What signals does this send?

After the New Year, the overall Hong Kong stocks market appeared somewhat dull compared to the “tech bull” in A-shares.

In the long term, the Hang Seng Tech Index, which investors are most familiar with, has experienced a significant correction. Since October last year, it has retraced nearly 30%, and many thematic fund net values have continued to decline.

During this period, multiple bottom-fishing funds, including southbound capital, share buybacks by companies, and cross-border ETFs, remain enthusiastic. In just this year, three ETFs have seen investor holdings increase by over 10 billion shares. A public fund analyst pointed out that such contrarian buying indicates the market is shifting from “panic clearing” to “value reshaping,” with domestic institutional investors and industry capital, centered on southbound funds, confirming their “pricing power” over Hong Kong stocks.

Deep Adjustment of Hang Seng Tech

According to statistics, as of March 4, over the past seven trading days, the Hang Seng Tech Index declined six days, with a year-to-date drop of 12.45%. Among individual stocks, Kingdee International fell nearly 30%, while Ctrip Group, Meituan, XPeng Motors, Leapmotor, and Tencent Music all declined over 20%.

Looking at the longer term, since the peak on October 3 last year, the Hang Seng Index has retraced over 27%. Several fund managers told Securities Times that “the recent decline in the Hang Seng Tech Index has indeed exceeded our expectations.”

As a key indicator of the Hang Seng Tech sector, multiple related ETFs have also fallen around 27%, and actively managed Hong Kong equity funds have seen their net asset values decline accordingly. While star companies in AI such as Bairu Technology, Zhipu AI, and MiniMax are highly sought after, public funds seem not to have benefited from the new wave of tech stocks in Hong Kong.

Why does the Hang Seng Tech Index, which gathers leading internet companies, continue to decline and even accelerate downward recently?

Bank of China Fund Manager Li Nian believes that this round of correction is not a fundamental weakening trend but more likely a “technical dip caused by liquidity squeeze and emotional misjudgment.” Li Nian pointed out that, affected by the Fed’s repeated rate cut expectations, Hong Kong stocks, as an offshore market, are sensitive to global liquidity, and short-term funding pressure exists.

Additionally, the internet companies with large weights in the Hang Seng Tech Index have recently shown weaker narrative momentum. On one hand, AI is reshaping internet business models, with companies maintaining high capital expenditure, and battles for traffic through food delivery wars and Spring Festival red envelope distributions have raised concerns about profit consumption, though these are necessary steps to build future moats. On the other hand, the process of understanding new things during transformation, such as current debates over AI bubbles and AI’s impact on software, are more emotional reactions. Overall, the underlying demand and policy foundation supporting the long-term development of the sector remain intact, and current sentiment may be overly reactive.

Some institutional analysts also pointed out that active IPOs and refinancing in Hong Kong have caused some dilution. Wind data shows that in 2025, the total funds raised from main board IPOs in Hong Kong will reach about HKD 286.9 billion, ranking first globally and surpassing the combined total of 2023 and 2024. These factors have collectively contributed to the ongoing decline of the Hang Seng Tech Index.

Funds Still Enthusiastic

Despite the continued decline in the secondary market, capital continues to decisively increase its holdings in the Hang Seng Tech sector. The sources of this “bottom-fishing” capital mainly fall into three categories: southbound funds, share buybacks by listed companies, and cross-border ETF allocations.

As of March 3, in 36 trading days of this year, 27 days saw net inflows from southbound trading, accounting for over 70%, with a total net inflow of HKD 181.8 billion. Leading internet giants have seen significant increases; southbound holdings of Tencent Holdings’ market value exceed HKD 540 billion, Alibaba-W over HKD 320 billion, and Xiaomi Group-W, Meituan-W each over HKD 100 billion. Regarding buybacks, Wind data shows Tencent Holdings repurchased HKD 6.358 billion worth of shares since the start of the year, Xiaomi Group over HKD 4 billion, and companies like Sunny Optical and Kingsoft have also repurchased shares worth over HKD 1 billion.

ETF bottom-fishing signals are even more evident. Year-to-date, Huatai-PineBridge’s Hang Seng Tech ETF increased by 19.3 billion shares, China Asset Management’s Hang Seng Tech ETF and Hang Seng Internet Technology ETF added over 12.84 billion and 11.77 billion shares respectively; other public funds such as E Fund, Tianhong Fund, and GF Fund also saw their related ETFs increase by over 1 billion shares each.

A public fund analyst in South China commented: “From the above fund structure analysis, it’s clear that the main buying force for Hang Seng Tech at this stage is institutional investors. Foreign capital is leaving due to liquidity pressures and geopolitical concerns, while domestic institutional and industry capital are confirming their ‘pricing power’ over Hong Kong stocks. Once macroeconomic pressures ease, these institutional funds could become the main drivers of a reversal.”

The aforementioned fund also stated that such contrarian buying indicates the market is shifting from “panic clearing” to “value reshaping.” The current main logic is based on extreme valuation attractiveness. Currently, the Hang Seng Tech Index’s forward P/E ratio is below 10% of the past five years, showing a significant valuation advantage. It is possible that the index has reached a stage bottom, presenting an opportunity for a rebound from oversold conditions.

May Have Fallen Out of “Cost-Effectiveness”

Looking ahead, “valuation” has become a core reason why many public funds remain optimistic about the Hang Seng Tech sector. As of March 4, the forward P/E ratio of the Hang Seng Tech Index dropped to 20.09, placing it at the 9.58th percentile over the past five years.

Fund manager Qu Shaojie of Great Wall Fund believes that the current valuation of the Hang Seng Tech Index is at a historically low level, more advantageous compared to US, Japanese, and Korean tech stocks. With the US, Japan, and Korea’s hardware tech expected to rise in 2026, the Hang Seng Tech Index has been adjusting since October last year, contrasting sharply with global tech sectors. The valuation likely fully reflects pessimistic expectations, increasing its attractiveness.

Jingshun Changcheng Fund’s Jin Huang believes that at this valuation level, pessimism has been largely priced in. From a fundamental perspective, leading Hong Kong tech companies are expected to see an inflection point in profitability, with consensus forecasts of over 40% EPS growth in 2026, which should gradually be reflected in asset prices. Meanwhile, top companies are announcing substantial R&D investments for the future, providing strong momentum for profit improvement.

Dacheng Fund’s Ran Linghao stated that looking forward, as overseas risks gradually ease, market focus is expected to return to endogenous growth within the industry. The long-term trend of Hong Kong stocks depends on profitability, so future earnings changes will remain a key variable in their movement.

“Based on consensus forecasts, the Hang Seng Tech Index is expected to achieve good earnings growth by 2026. Industry trends suggest that as delivery subsidies gradually exit and tech companies’ internal growth continues, the profitability of constituent stocks should also see solid growth. Therefore, over time and as earnings expectations are gradually realized, the Hang Seng Tech Index may experience a trend recovery,” Ran concluded.

(Article source: Securities Times)