Fund managers believe that after a deep adjustment in the first quarter, the Hang Seng Tech Index's overall valuation has returned to a relatively reasonable range, with the cost-effectiveness of medium- to long-term allocation further improving. Once external disruptions subside, the index is expected to resume its upward trend.
On May 4, the first trading day after the Hong Kong market holiday, the Hang Seng Index opened higher, rising nearly 2%. The Hang Seng Tech Index staged a strong rebound, climbing as much as 3.7% to break through the 5000-point level. By the close, the Hang Seng Index was up 1.24%, while the Hang Seng Tech Index gained 2.16%.
Sector-wise, communications equipment, semiconductors, machinery, electrical equipment, and software services led the gains. MINIMAX surged over 12%, Xiaomi Group rose nearly 7%, and Alibaba advanced close to 5%. In contrast, pharmaceuticals, biotechnology, and oil and gas sectors faced collective pressure.
On May 5, the Hong Kong market experienced volatile declines, with the Hang Seng Tech Index dropping 0.94% to close at 4929 points.
Over the past month, significant divergence has been observed within the AI sector, with computing power-related segments maintaining high popularity. However, the Hang Seng Tech Index remains in a bottom-building phase, characterized by repeated fluctuations.
The performance of the Hang Seng Tech Index has caused distress for many investors holding related positions. In the first quarter, the index fell nearly 15%, leading to substantial losses for relevant public funds. Wind data shows that public funds overall incurred losses exceeding 200 billion yuan in the first quarter of 2026, with funds tracking the Hang Seng Tech Index ranking among the top losers.
On April 29, Hong Kong's Securities and Futures Commission announced its official account on Xiaohongshu, with its first post receiving over a thousand comments. Top comments focused on the Hang Seng Tech Index, with "Save the Hang Seng Tech" trending as the most popular remark.
"Tensions in the Middle East and high oil prices will continue to disrupt the Federal Reserve's interest rate cut timeline in the short term, leading to a tighter external liquidity environment than previously expected. However, China's domestic accommodative policy stance persists, providing underlying support for Hong Kong-listed tech assets," said He Zhihao, a fund manager at Morgan Fund. "After a deep correction in the first quarter, the Hang Seng Tech Index's overall valuation has returned to a relatively reasonable range. The cost-effectiveness of medium- to long-term allocation has improved further, and once external disruptions clear, the index is expected to resume its upward trend."
The Hang Seng Tech Index dragged down public fund performance in the first quarter. According to Wind data, public funds overall recorded losses exceeding 200 billion yuan in the first quarter. Passive index funds alone accounted for over 160 billion yuan in losses, while QDII equity funds lost more than 100 billion yuan.
Further analysis reveals that index funds linked to the Hang Seng Tech Index were the primary contributors to these losses. Thematic stock funds named with keywords like "Hang Seng" or "Hong Kong Stock Connect" collectively reported a total profit loss of 115.7 billion yuan in the first quarter.
Specifically, the products with the largest losses in the first quarter were all Hong Kong tech index funds. These included Fullgoal ChinaAMC Hang Seng Stock Connect Internet ETF, which lost 17.55 billion yuan; ChinaAMC Hang Seng Tech ETF, down 10.16 billion yuan; and Huatai-PineBridge Hang Seng Tech ETF, which declined 9.32 billion yuan.
Since the beginning of the year, the Hang Seng Tech Index has continued to retreat. Wind data indicates that from its peak in October 2025, the index experienced a maximum drawdown of 30%, with a nearly 15% drop in the first quarter of 2026.
Lin Yu is one of many investors holding Hang Seng Tech-related stocks. Since purchasing at the peak in October 2025, he has endured a continuous decline in share prices. Sharing his investment lesson, he said, "Alibaba faced valuation pressure due to the food delivery competition, and the long-term profitability visibility of its flash sales business is limited. I significantly reduced my position in March."
Market views suggest that ongoing global geopolitical tensions are considered a core reason for the weak performance of Hong Kong's tech sector by most fund managers. Additionally, industry experts believe that the transition between old and new AI narratives, tightening US dollar liquidity, and profit concerns exacerbated by food delivery subsidies around the Spring Festival have intertwined as significant negative factors contributing to the Hang Seng Tech Index's persistent weakness.
Li Yue, a fund manager at Penghua Fund, noted that the US-Israel-Iran conflict led to a surge in international oil prices, sharply increasing global inflation expectations. Market expectations for the timing of Federal Reserve rate cuts have been significantly delayed or even reversed. Rising risk-free rates have directly suppressed valuations for tech stocks, which typically have high valuations and cash flows concentrated in the distant future.
Furthermore, Li Yue stated that the nearly year-long food delivery subsidy war since early 2025 has caused deflation in the catering industry. Both platforms and merchants in the产业链 face the dilemma of increasing revenue without boosting profits, severely eroding profit expectations for related internet companies. "Under the dominance of these systemic risks, market risk appetite has sharply contracted, leading to significant outflows from high-beta tech growth sectors." Despite the AI investment boom, internet giants are not favored by the market. "With the rapid development of AI Agent technology, concerns have grown that AI may comprehensively replace traditional software applications, and that some platform companies may lag in underlying large model capabilities," said Cai Ka'er of Fullgoal Fund in a quarterly report. "These concerns have somewhat suppressed valuations for related internet companies, especially those perceived as not deeply engaged in core AI technologies."
Why are investors buying more as prices fall? Despite pressure on the performance of some Hong Kong tech funds in the first quarter, surprisingly, their shares under management increased against the trend. Huatai-PineBridge Hang Seng Tech ETF saw a net increase of 21.157 billion shares in the first quarter. Several other funds, including ChinaAMC Hang Seng Tech ETF, ChinaAMC Hang Seng Internet and Technology ETF, and E Fund Hang Seng Tech ETF, each recorded net increases of over 10 billion shares.
However, over the past month, many of these ETFs have experienced slight net outflows, indicating investor divergence and博弈 during the Hang Seng Tech Index's weak rebound.
From a valuation perspective, the Hang Seng Tech Index's trailing price-to-earnings ratio is currently around 22 times, lower than over 75% of the time in the past decade. It trades at a nearly 20% discount to the Nasdaq 100 Index and a nearly 50% discount to the ChiNext Index.
Despite enduring prolonged losses, Lin Yu stated he would continue waiting for a right-side trading opportunity. Another investor, Yu Lan, shared, "The Hang Seng Tech Index represents China's most advanced productive forces. If you believe China can surpass the US, then the currently undervalued Hang Seng Tech Index holds significant investment value. Based on this premise, I choose to buy more as it falls."
Looking ahead, most fund managers remain optimistic about the outlook.
Li Yue believes market direction will depend on the evolution of several key variables. First, the progression of the US-Israel-Iran conflict remains a core macroeconomic variable. Its easing or escalation will directly impact global inflation trends and monetary policy expectations, thereby determining the scope for valuation recovery in tech stocks. Second, strong regulatory intervention in the food delivery war has been clearly signaled. The State Administration for Market Regulation publicly stated on March 25 that "the food delivery war should end," which the market interprets as positive. This is expected to alleviate profit pressure on platform companies and shift competition from "subsidy battles" back to "service and innovation." From a valuation standpoint, the Hang Seng Tech Index's current P/E ratio is at historically low levels, highlighting its medium- to long-term allocation value.
"Current market pessimism towards Hong Kong's internet sector may be excessive," analyzed Cai Ka'er in the quarterly report. "Some market concerns likely stem from temporary factors, such as the pace of large model releases or commercialization speed for certain companies, rather than a lack of long-term technological strength. As these leading companies successively release new models and gradually improve their AI application ecosystems, their technological capabilities are expected to gain fuller market validation, driving valuation recovery."
"Looking ahead to the second quarter, the Hong Kong market is likely to experience a moderate recovery, with structural opportunities more active than in the first quarter and an overall more favorable market environment. As the mainland economy steadily warms up, core demand in consumption and investment will gradually be released. Listed companies' first-quarter reports will be successively released and realized, providing solid support from marginal improvements on the profit side. Meanwhile, Hong Kong stocks have corrected sufficiently, further highlighting their cost-effectiveness. Combined with sustained southbound capital回流 into core assets, which strengthens pricing power for quality stocks, this injects strong momentum for market stabilization and recovery," said Chen Shuwei of Bocom Schroders Fund. She noted that uncertainties in Federal Reserve interest rate policy and occasional disruptions from overseas geopolitical tensions may cause阶段性波动, but these are not expected to alter the overall recovery trend.
From a medium- to long-term perspective, Yang Kun of Wanjia Fund believes that current market concerns over "internal卷式" competition and AI bubbles are already largely reflected in stock prices. The core investment logic for the sector has not fundamentally changed. After adjustments, the valuation of Hong Kong's tech sector has entered an attractive range, with safety margins gradually becoming apparent, providing a favorable window for medium- to long-term positioning. Against the backdrop of global tech industry cycle resonance, China's AI tech field possesses structural upside potential.