As October draws to a close, the Hang Seng Index has fallen approximately 3% this month, while the Hang Seng Tech Index has dropped nearly 8%. From its peak, the tech index has seen a maximum decline of around 15%.
Just a month ago, investors were enthusiastic about buying Alibaba and Tencent. Now, the same individuals are questioning whether it’s time to exit Hang Seng Tech stocks. The sentiment is understandable—year-end approaches, and no one wants to see their profits erode.
The anxiety surrounding Hong Kong’s tech stocks is inevitable. While the Nasdaq continues hitting record highs with supportive news, Hong Kong’s market has underperformed. Adding to the unease, cyclical sectors like metals, banking, insurance, and coal have gained momentum, raising questions about a potential market shift.
But let’s revisit why investors turned to Hong Kong’s tech stocks in the first place. Beyond valuation appeal, scarcity is a key factor. The Hang Seng Tech Index’s top constituents—Alibaba, SMIC, Tencent, Meituan, NetEase, BYD, Xiaomi, JD.com, Kuaishou, and Baidu—are largely inaccessible in mainland markets. This exclusivity has driven over a trillion yuan in southbound capital inflows this year, primarily into Alibaba and Tencent.
Another bullish case for Hong Kong tech lies in the Fed’s rate-cut cycle, which should support liquidity. Additionally, AI and computing power remain dominant themes, with major Hong Kong-listed tech firms aggressively investing in these areas. While high spending doesn’t guarantee returns, stagnation ensures obsolescence—making these stocks a calculated bet.
Despite recent declines, the core investment thesis remains intact. Concerns about bubbles seem premature when comparing valuations: Tencent trades at 25x P/E, Alibaba at 20x, NetEase at 18x, and JD.com at 15x—far from the speculative multiples seen in names like Nvidia (with a $5 trillion market cap) or Cambricon in the A-share market.
In summary, investing in Hong Kong tech requires a long-term perspective. Technological advancement is inherently volatile, and short-term trading risks missing major opportunities. The current pullback isn’t alarming—after five straight months of gains (May to September), a correction is natural. Historically, similar patterns (like the 2020 rally) preceded extended bull runs. While history doesn’t repeat exactly, this cycle could deliver even stronger returns.
(Note: This analysis is for reference only and does not constitute investment advice.)