Hang Seng Tech Index undergoes a deep adjustment; the value of contrarian allocation becomes prominent

In recent weeks, the Hang Seng Tech Index has continued to undergo weak pullbacks. After hitting a temporary high in October 2025, it then moved into a sustained downward channel. This round of adjustment has unfolded in stages: in the early period, it faced pressure from global technology index valuation contraction and weakness in the consumer segment; later, the industry landscape became more divergent and competition among industries intensified, further dragging down sector performance. A number of core heavy-weight stocks also declined in tandem, and overall performance was clearly weaker than the broader market index. Of note, Southbound capital took the opportunity to build positions against the trend, continuing to add to leading targets.

Analysts believe that this round of adjustment has already fully priced in short-term bearish sentiment, and that the fundamental picture of the industry core has not reversed. The current Hong Kong tech sector has multiple bottom supports, and it complements A-share tech assets in a differentiated way; the timing for medium- to long-term strategic positioning is already mature.

● Reporter Tan Dinghao

Index continues to pull back

On March 31, the Hang Seng Tech Index fell 0.86% to close at 4,649.82 points. Over the five months since October 2, 2025, when the Hang Seng Tech Index touched a temporary high of 6,715.46 points, the index has shown a step-like downward trend, and its cumulative decline has now exceeded 30%.

Regarding the Hang Seng Tech Index’s走势, the research team at Haitong Securities (Huatai Securities) divided this round of pullback into two phases: the first phase is from October to November 2025. During this period, the global technology index simultaneously saw valuation contraction, making the downward pressure on the Hang Seng Tech Index more pronounced. Weak domestic demand data and continued industry “involution” competition beyond expectations, combined with renewed uncertainty from tariff policy changes, drove large pullbacks in consumer electronics, home appliances, and automobiles—forming major drag factors for the index; AI-related sectors showed stronger resilience during this phase. The second phase runs from mid-January 2026 to the present. Trading in the global AI theme has bifurcated into two main lines—software and hardware—and the adjustment logic’s core transmission shifted to internet consumer and comprehensive platform sectors. The core drivers of this round of sector adjustment include intensifying industry “involution,” increasing doubts about the logic of capital expenditure and earnings realization, and strengthened regulatory oversight.

Specifically, the first round of adjustment in the Hang Seng Tech Index began in mid-October 2025. On October 14, the index fell below the 6,000-point integer level; by November 28, it closed at 5,599.11 points, down more than 16% cumulatively from the earlier high of 6,715.46 points. From mid-January 2026 to now, the index has entered a second round of adjustment. On January 20, the index fell below 5,700 points; it closed at 5,137.84 points on February 27. Since March, the index has continued to fall further: on March 2 it broke below 5,000 points; on March 23 it broke below 4,700 points intraday; and on March 30 it hit a low of 4,619.67 points intraday.

Compared with the deep pullback of the Hang Seng Tech Index, the Hang Seng Index in the same period was relatively more resilient. It closed at 27,287.12 points on October 2, 2025, and at 24,788.14 points on March 31, 2026, for a cumulative decline of more than 7%, which is significantly lower than the decline in the Hang Seng Tech Index.

Southbound capital adds more against the trend

Among the constituent stocks of the Hang Seng Tech Index, companies with higher weights generally experienced notable pullbacks. As of March 31, 2026, since October 2025, Meituan-W’s share price fell from HK$105.8 to HK$82.95, a cumulative decline of over 20%; Xiaomi Group-W fell from HK$55.8 to HK$31.76, a cumulative decline of over 41%; and NetEase-S fell from HK$237.05 to HK$170.5, a cumulative decline of over 26%. In addition, JD.com-SW and Alibaba-W saw cumulative declines of over 18% and 32% respectively in the same period, while Tencent Holdings’ share price declined cumulatively by 27%.

Of note, Southbound capital has continued to increase its allocations during this period. Since October 2025, up to March 30, 2026, Southbound capital increased its holdings of Xiaomi Group-W by more than 1.5 billion shares, with a holding market value of HK$172.7 billion; it added more than 270 million shares of Meituan-W, with a holding market value of HK$118.6 billion; and it added more than 100 million shares of Alibaba-W, with a holding market value of HK$275.7 billion. In addition, Southbound capital increased holdings of Kuaishou-W and Tencent Holdings by more than 100 million shares and 75 million shares respectively.

From the perspective of capital flows, the research team at Haitong Securities believes that Southbound capital has dramatically increased its holdings of targets related to the Hang Seng Tech Index since last August. After the first round of pullback, its buying intensity further increased, forming a trend of adding positions against the market. If the market later rebounds, the related funds may gradually realize gains, thereby curbing the duration of the ongoing rebound and limiting upside potential.

From a micro perspective, stabilization or even improvement in profit realization for the consumer sector depends on the industry’s “involution” competitive landscape having topped out, while real estate and high-frequency consumer data steadily recover. For the AI sector, valuation repair relies on industry catalysts taking hold: the AI software segment needs leading companies’ large-scale models and application-layer progress to make substantive breakthroughs, and the domestic AI hardware segment more needs the industry to increase capital expenditure. From a macro perspective, the Hang Seng Tech Index is highly sensitive to changes in geopolitical conditions; it is important to watch for relevant external variables to stabilize and release positive signals.

Arriving at opportunities for strategic allocation

Looking across the Hong Kong tech market and this round of adjustment, analysts believe that the irrational adjustment of the Hang Seng Tech Index has already released short-term sentiment and risk to a considerable extent, and the fundamental trend has not undergone fundamental changes.

The research team at Everbright Securities stated that the Hang Seng Tech Index has already released short-term sentiment and risk to a considerable extent through this round of irrational adjustment. Currently, it has four bottom characteristics: oversold conditions and a valuation trough (“valuation undervaluation”), contrarian accumulation by funds, a positive outlook for AI industry fundamentals, and heightened expectations for corporate share buybacks. With clear sector support and a significant improvement in allocation cost-effectiveness, it forms a “golden window” for medium- to long-term strategic allocation. This adjustment is only emotional volatility and has not reversed the fundamental trend. Going forward, as market sentiment repairs and incremental capital forms a resonance, and as buybacks by leading companies land, the index is expected to see a period of rebound. Investors are advised to shed short-term panic, rationally allocate to high-quality assets bought at valuation dislocations, adopt a strategy of building positions in batches and holding long term, and focus on core targets.

From the perspective of balanced allocation, the research team at China International Capital Corporation (CICC) believes that the Hang Seng Tech sector still has unique value: first, Hang Seng Tech has a group of mature internet companies with nationwide-level applications. These companies have mature business models and stable profitability, and are more akin to “soft technology” at the application layer. Meanwhile, most constituent stocks included in A-share tech indices are growth-stage companies, mainly covering areas such as semiconductors, chips, and AI computing power infrastructure—truly “hard technology.” The differences in positioning between the two are exactly suitable for combination allocation of technology assets.

Second, there is a certain rotation effect between A-shares and Hong Kong shares, and even between US stocks. This has been especially evident since 2025: in Q1, DeepSeek-related concepts drove the re-rating of China assets, with Hang Seng Tech leading the charge; in Q2, US stocks rose beyond expectations on the performance and capital expenditure of AI leading companies; in Q3, domestic capital entered the market alongside the innovation-tech market theme, and A-shares later took the lead; in Q4, Hong Kong stocks once outperformed due to expectations of looser policy and the internet AI narrative, but then fell behind again.

On the allocation level, the research team at Everbright Securities believes that investors should first focus on allocating to Hang Seng Tech ETFs. Their coverage spans the full spectrum, including internet leaders, AI applications, and the computing power industry chain, which can effectively diversify single-stock risks and precisely capture the sector’s overall repair rally. At the individual-stock level, the focus is on the leading companies within the two main lines—AI and the platform economy—selecting core companies with efficient commercialization, stable cash flows, and valuations at historical lows.

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