Kuaishou's decline drags down the Hengke Index, with component stocks falling sharply one after another after earnings reports.

Investors in the Hang Seng Tech Index have recently been feeling anxious: almost every major constituent stock’s performance, whether slightly better than expected, in line, or below expectations, has experienced a significant drop after disclosure.

This time, on March 26, it was the short-video leader Kuaishou (01024.HK). In the morning, Kuaishou plummeted 13.36%, closing near HKD 46 at noon, while the Hang Seng Tech Index fell 2.15%, closing at 4,817 points, with a half-day trading volume of HKD 35.6 billion. Data at the end of February showed that Kuaishou accounted for 5.32% of the Hang Seng Tech Index.

Industry insiders told First Financial that Kuaishou’s performance remains slightly above expectations, but for tech stocks, investors need to consider the artificial intelligence investment returns of these companies. Currently, AI investments still have limited impact on performance, which has triggered a sell-off. Although some stocks have already fallen below their intrinsic value, caution is still advised regarding risks from geopolitical changes in the Middle East and other regions. Once these risks are alleviated, better bottom-fishing opportunities may emerge.

Kuaishou’s performance slightly exceeds expectations

According to disclosures, for the full year 2025, Kuaishou’s average daily active users reached 410 million, with total revenue increasing 12.5% year-on-year to RMB 142.8 billion. Adjusted net profit for the year was RMB 20.6 billion, up 16.5% year-on-year, with an adjusted net profit margin of 14.5%.

In the fourth quarter of last year, Kuaishou’s revenue grew 11.8% year-on-year to RMB 39.6 billion, and adjusted net profit increased 16.2% to RMB 5.46 billion; the average daily active users’ daily usage time reached 126 minutes.

Huatai Securities believes that Kuaishou’s Q4 data slightly exceeded expectations, but under the background of content rectification for live streaming in 2026, the growth rate of commissions and advertising revenue has significantly slowed (small and medium-sized merchants are under pressure and less resilient). Meanwhile, profits have declined year-on-year due to AI investments (depreciation and salary expenses).

Boda Capital International CEO Wen Tianna told First Financial that on the morning of the 26th, Kuaishou’s stock price once plunged nearly 15%, which is highly consistent with the recent phenomenon of weak performance after Tencent, Alibaba, and other Hang Seng Tech constituent stocks released earnings reports. In the short term, stock prices are prone to selling pressure. The fundamental reason lies in the “profit-taking” mentality: over the past year, the rebound of Hong Kong tech stocks largely depended on AI concepts and valuation repairs. The market has already priced in high growth expectations for 2025 and 2026. Although Kuaishou’s profitability has improved and AI monetization has begun to show results, user growth remains moderate, and core live streaming business differentiation has caused overall growth to be in the mid-to-low double digits, which some investors interpret as a lack of enough surprises in the growth story.

Blue Water Capital CIO Li Zeming said that recently, after tech earnings releases, stock reactions have generally been negative. Taking Kuaishou as an example, the market’s biggest concern is that its capital expenditure will increase significantly, mostly directed toward AI, but the returns are uncertain.

Tech stocks “dive” after earnings reports

Among the main constituents of the Hang Seng Tech Index, after recent earnings announcements, whether slightly above expectations like Tencent Holdings (00700.HK) or slightly below like Alibaba (09988.HK), all experienced sharp declines. On March 19, Tencent fell 6.81%, and on the 20th, Alibaba dropped 6.29%. Other tech stocks also saw similar declines, and the anticipated Middle Eastern capital inflows seem to have yet to arrive.

Wutong Research analyst Cen Zhiyong said that Kuaishou’s performance isn’t bad; rather, investors have high expectations for tech stocks and are worried about future growth. Other tech stocks, previously assigned many AI concepts, have shown weaker-than-expected results, poor cost control, especially in sales and marketing expenses. Some companies’ strategies involve investing funds into AI and other future growth areas, but some investors focus on share buybacks. When buyback amounts decrease, stock prices are inevitably pressured.

Wen Tianna believes that the Hong Kong stock tech sector’s holdings are concentrated, with southbound funds and international institutions often quickly adjusting their positions after earnings seasons, shifting toward more certain stocks. Additionally, macro factors such as high oil prices and geopolitical risks make tech stocks the preferred targets for risk asset sell-offs. Essentially, this reflects the market’s cautious digestion of previous high expectations, not a fundamental weakening. In the short term, the Hang Seng Tech Index may continue to fluctuate, but if AI commercialization data continues to validate, valuations could attract capital back. Current investments should mainly follow long-term logic, and investors should view short-term volatility rationally.

Li Zeming also said that the market has grown weary of large-scale AI investments and doubts whether costs can be recovered. Given the high costs of AI investments today, whether these investments are effective has been a common concern in the capital markets over the past six months, both in Hong Kong and the US.

Gao Feng Securities strategist Liu Chenming believes that current interest rates, exchange rates, and foreign capital flows do not show signs of systemic risk aversion. Participation of Middle Eastern funds in Hong Kong stocks remains mainly through primary market cornerstone investments. Liu Chenming maintains a long-term optimistic view of Chinese stocks; once short-term geopolitical risks are eliminated, the market may see the best bottom-fishing opportunity of the year.

(This article is from First Financial)