Hong Kong Tech Stocks: A Strategic Rebound and Buying Opportunity

The Hang Seng Tech Index, after a dramatic pullback from its March 2024 peak, now presents a compelling entry point for investors seeking exposure to China’s tech renaissance. Driven by artificial intelligence (AI) breakthroughs, geopolitical détente, and supportive policy shifts, the sector’s recent volatility has created a valuation gap that savvy investors are poised to exploit.

Market Dynamics: Recovery Amid Volatility

The index’s 30% year-to-date (YTD) gain as of early 2025 masks significant turbulence. After shedding over $350 billion in market value from its March 2024 peak, the index rebounded sharply, rising over 10% in just four trading sessions. This volatility reflects both external pressures—such as U.S. tariff threats—and internal catalysts like China’s AI advancements.

The pullback has been particularly steep for some names: Mirae Asset Hang Seng TECH ETF fell 17.4% in a single day amid tariff fears. Yet, the sector’s recovery underscores its resilience. Regulatory tailwinds, such as President Xi’s symposium with entrepreneurs signaling softer oversight, and the launch of DeepSeek’s R1 AI model—challenging U.S. tech dominance—have reignited investor optimism.

The AI Catalyst: China’s Innovation Play

The DeepSeek R1 model, launched in late January 2024, marked a turning point. Its cost-effective performance on older hardware made AI adoption viable across industries, from automotive (Great Wall Motor) to telecom (China Mobile). Major tech firms accelerated integration:
- Alibaba’s Qwen2.5-Max drove its stock up 50% in early 2025.
- Baidu and Tencent saw gains as they embedded AI into core platforms like search and WeChat.

This momentum aligns with China’s 2025 policy priorities, which prioritize tech innovation and “technological sovereignty.”

Valuation: Undervalued, but Not Unjustly

The Hang Seng Tech Index trades at a P/E ratio of 11x, near its historical average, despite a 16% rally in a month. This contrasts sharply with the S&P 500’s 29x multiple, suggesting relative value.

Analysts like Vey-Sern Ling (UBP) highlight that China’s tech sector remains discounted due to lingering geopolitical risks. However, the pullback has made stocks like BYD (+1.33%) and Xpeng (+9.8% on flying car news) more attractive.

Risks and Considerations

While the case for tech stocks is compelling, risks persist:
1. Geopolitical Tensions: U.S. semiconductor restrictions and tariffs could resurface.
2. Overbought Conditions: The RSI briefly entered overbought territory in February 2025, suggesting short-term corrections.
3. Economic Uncertainty: China’s 2025 GDP growth targets face headwinds, though tech’s decoupling from traditional sectors (e.g., manufacturing) mitigates some exposure.

Strategic Recommendations

China Securities Co., Ltd.’s implicit bullish stance aligns with technical and fundamental trends:
- Buy on Pullbacks: Use support levels (e.g., 5,460) as entry points.
- Focus on AI Leaders: Prioritize firms with proprietary models (Alibaba, Baidu) and those leveraging AI for efficiency (BYD, telecoms).
- Monitor Geopolitical Signals: The potential Trump-Xi “Birthday Summit” in June 2025 could de-risk the sector.

Conclusion: A Golden Cross for Tech

The Hang Seng Tech Index’s 30% YTD gain in early 2025, coupled with its 11x P/E ratio, positions it as a high-conviction play for long-term growth. The sector’s recovery from a $350 billion drop demonstrates resilience, while AI-driven innovation and policy support provide tailwinds.

Investors should consider gradual allocations to tech names, particularly those with secular growth (e.g., AI, EVs), while maintaining flexibility for geopolitical volatility. As James Liu (Clearnomics) notes, “This isn’t just a rebound—it’s a structural shift toward China’s tech leadership.” The pullback has indeed been sufficient; now is the time to lay the groundwork for the next leg of the AI revolution.