Beneath the Bear: Uncovering Bullish Signals in the Hang Seng Tech Index Downturn

Cyrus ColeSaturday, Apr 19, 2025 5:14 pm ET
2min read

The Hang Seng Tech Index has once again entered a “technical bear market,” dropping more than 20% from its recent peak. For investors, this might seem like a signal to retreat. But beneath the surface, two critical bullish catalysts are emerging—ones that could position the index for a rebound in the coming quarters. Let’s dissect the data and context behind this apparent contradiction.

First, the reality of the bear: . The index’s decline reflects broader headwinds, including lingering regulatory uncertainty in China’s tech sector, global economic slowdown concerns, and a stronger U.S. dollar squeezing emerging market assets. Yet within this downturn, two trends stand out as reasons for cautious optimism.

1. Valuation Discounts Reach Historically Attractive Levels
The Hang Seng Tech Index now trades at a forward P/E ratio of 18x, down sharply from its 2021 peak of over 40x and well below its five-year average of 25x. This compression isn’t just a function of lower earnings—it’s a reflection of investor pessimism. Companies like Tencent, Alibaba, and Meituan now trade at discounts to their long-term averages, despite maintaining robust cash reserves and recurring revenue streams.

Consider Tencent (): its valuation has fallen to levels not seen since 2018, even as its core gaming and advertising businesses remain resilient. Similarly, Alibaba’s cloud division continues to grow at double-digit rates, yet the stock trades at a valuation discount to peers like Amazon. These discounts suggest that the market has already priced in many of the sector’s challenges, leaving room for upside if sentiment improves.

2. Regulatory Tailwinds and Policy Support
The second bullish signal is the gradual shift in China’s regulatory environment. After years of crackdowns on data privacy, antitrust enforcement, and content restrictions, Beijing has signaled a pivot toward stabilizing the tech sector. Recent measures include:
- Easing of antitrust penalties: Fines for companies like Alibaba and Tencent have slowed, suggesting a recalibration of enforcement.
- Support for AI innovation: The government’s emphasis on artificial intelligence and domestic semiconductor development aligns with tech giants’ strategic priorities.
- Loosened foreign investment rules: Moves to relax restrictions on offshore listings and data flows could attract global capital.

This regulatory thaw isn’t yet a full green light, but it marks a critical shift from the punitive policies of 2021–2022. For instance, the central bank’s recent cut to the reserve requirement ratio (RRR) for banks—freeing up liquidity—hints at broader economic stimulus, which could spill over into tech stocks.

Conclusion: A Bear Market with a Bullish Foundation
The Hang Seng Tech Index’s bear market is real, but the combination of historically low valuations and regulatory stabilization creates a compelling case for long-term investors. Key data points underscore this:
- The index’s dividend yield has risen to 1.5%, its highest since 2015, signaling better risk-adjusted returns.
- Short interest in major constituents like Xiaomi and NetEase has surged, often a contrarian indicator of impending rebounds.
- The tech sector’s contribution to China’s GDP growth remains robust at 7.8%, highlighting its enduring economic importance.

While near-term volatility remains, the foundation for a recovery is in place. Investors who focus on quality names—those with strong balance sheets, recurring revenue, and alignment with China’s strategic priorities—could be handsomely rewarded as sentiment turns. The Hang Seng Tech Index’s current slump may prove to be the buying opportunity of the decade.

In the end, markets climb a wall of worry. For the Hang Seng Tech, that wall is now steeper—and the view from the bottom is clearer than it appears.