On June 29th, Hong Kong's three major indices, having endured a sustained decline, opened higher with internet leaders staging a collective rebound. At the time of writing, MEITUAN-W and BILIBILI-W were up over 6%, BABA-W rose more than 4%, XIAOMI-W gained over 3%, and TENCENT increased by more than 1%. The Huabao Hong Kong Internet ETF (513770), which holds significant positions in these internet giants, saw its on-exchange price rise by 2.86%. Just the day before, this same ETF had touched a new low for the year.

To date, the CSI Hong Kong Stock Connect Internet Index has fallen more than 50% since its correction began on October 3rd, 2025. Its current trailing price-to-earnings ratio stands at just 17.04 times, positioned at the absolute bottom of the 0th percentile over the past decade.

Market Analysis and Conditions for Recovery

CITIC Securities points to confidence in the long-term appeal of Chinese assets globally, which extends to a stronger belief in Hong Kong stocks. However, they note that for the Hong Kong market to shift from underperformance to strength, three conditions must align: 1) an improvement in the global liquidity environment; 2) a halt to the downward revision of earnings expectations; and 3) a reduction in micro-level supply-side disruptions.

Regarding the internet sector specifically, while the AI wave has not yet significantly contributed to profits in the near term, opportunities in the application layer are not absent. Internet platforms possess user bases, data, payment systems, content, e-commerce, local services, and cloud infrastructure. Once the commercialization of AI applications begins to accelerate, the potential for profit elasticity may be re-priced by the market.

Catalysts for a Potential Turnaround

China Merchants Securities believes the negative factors for the Hong Kong internet sector are nearly exhausted, placing it in a structural bottom with a solid floor and awaiting catalysts for upward movement. Short-term gains are seen as dependent on two key catalysts: a revaluation driven by AI and a marginal improvement in earnings. The mid-year results in August are highlighted as a critical verification point.

Investors are advised to monitor the potential value re-rating of Hong Kong's leading internet companies amid the AI revolution. The Huabao Hong Kong Internet ETF (513770) and its feeder funds (Class A: 017125; Class C: 017126) passively track the CSI Hong Kong Stock Connect Internet Index. The index's top ten holdings aggregate tech giants like BABA-W, TENCENT, and other AI application firms across various sectors, showcasing significant leadership advantages. The ETF offers same-day T+0 trading with good liquidity.

Alternative Investment Strategy

For those bullish on Hong Kong tech but seeking to mitigate volatility, the market's first product of its kind, the Huabao Hong Kong Large Cap 30 ETF (520560), presents an alternative. It employs a "tech + dividends" barbell strategy. Its portfolio includes high-volatility tech stocks like Alibaba alongside stable, high-dividend payers from sectors such as banking and insurance, making it a potential foundational holding for long-term Hong Kong market allocation.

Important Investor Notices

Investors are reminded that recent market volatility may be significant, and short-term price movements are not indicative of future performance. It is crucial to invest rationally based on one's own financial situation and risk tolerance, paying close attention to position sizing and risk management.

Data sources include the Shanghai and Shenzhen stock exchanges.

ETF Fee Information: Subscription and redemption agents may charge a commission not exceeding 0.5% when investors subscribe for or redeem fund units, which includes related fees charged by stock exchanges and registration institutions. Feeder Fund Fee Information: The Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class A) has a front-load subscription fee of 1,000 RMB per transaction for amounts over 2 million RMB, 0.6% for amounts between 1 million RMB (inclusive) and 2 million RMB, and 1% for amounts below 1 million RMB. The redemption fee is 1.5% for holding periods under 7 days and 0% for periods of 7 days or more. No sales service fee is charged. The Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class C) charges no subscription fee. The redemption fee is 1.5% for holding periods under 7 days and 0% for periods of 7 days or more. The sales service fee is 0.3%.

Risk Disclosure

The Huabao Hong Kong Internet ETF passively tracks the CSI Hong Kong Stock Connect Internet Index, which has a base date of December 30, 2016, and was published on January 11, 2021. The index's constituent stocks are adjusted according to its compilation rules. The index constituents mentioned are for illustrative purposes only; descriptions of individual stocks do not constitute any form of investment advice nor represent the holdings or trading trends of any fund managed by the manager. The fund manager assesses this fund's risk level as R4 (Medium-High Risk), suitable for aggressive (C4) and above investors. Any information appearing herein (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors are solely responsible for their independent investment decisions. Furthermore, any views, analysis, or forecasts herein do not constitute investment advice of any kind to the reader, and no liability is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee this fund's performance. Past performance of a fund is not indicative of its future results. Fund investment carries risks, and caution is advised.