Hong Kong tech ETFs see record inflows despite index slump in September

During the Mid-Autumn Festival holiday, while A-share investors enjoyed a rare break from trading, the Hong Kong stock market closed in the red again. On September 25, the Hang Seng Index fell 1.01%, and the Hang Seng Tech Index dropped 1.13%, dampening the mood for many investors still on holiday.

Since the start of September alone, the Hang Seng Tech Index has fallen over 6%. Yet, in a striking contrast, despite the persistent decline and low market sentiment, Hang Seng Tech ETFs have seen a massive inflow of capital, with several products recording share increases of billions in a single month.

Why are investors stubbornly "buying more as the index falls"?

Investors "Grow Stronger" as the Index Declines

The Hang Seng Tech Index has seen a notable pullback recently, erasing the one-and-a-half-month rally that began at the end of June. Over a longer timeframe, the index has slowly fallen back to levels seen two years ago, essentially returning to its starting point after a roller-coaster ride.

Notably, investor enthusiasm remains high. Since September, despite the Hang Seng Tech Index falling over 6.67%, the scale of several thematic products has steadily increased.

According to statistics, in September alone:

• ChinaAMC Hang Seng Internet Technology ETF saw its share count surge by 5.176 billion units.
• Huatai-PineBridge Hang Seng Tech ETF added over 4 billion units.
• ChinaAMC Hang Seng Tech ETF and Dacheng Hang Seng Tech ETF each saw increases of over 1.1 billion units.

Analysts: Overseas Liquidity Pressure Weighs on Hong Kong Tech

E Fund Management attributed the recent adjustment to rising U.S. energy prices, which have pushed up inflation expectations and led to a rapid increase in Fed rate hike expectations. The 10-year U.S. Treasury yield briefly approached 5%, putting significant valuation pressure on long-duration assets like Hong Kong tech stocks.

E Fund noted that the current adjustment in Hong Kong stocks is more a result of concentrated shocks from overseas liquidity and risk appetite. If rate hike expectations do not rise further, tech assets previously suppressed by rising rates may have some room for valuation recovery.

A channel executive at a public fund in East China pointed out that as net asset values decline, many retail investors choose to add positions rather than cut losses, locking in previous capital. These investors widely adopt a "grid trading" style of dollar-cost averaging—adding positions each time the ETF net value falls by a preset margin—directly boosting ETF on-exchange shares.

Another research report noted that inflows into equity ETFs are negatively correlated with market volatility. The primary reason is that ETF returns depend on expectations of market or index upside; thus, when the market falls, the cost-effectiveness of investing improves, creating a negative correlation. Additionally, ETFs are gaining broader acceptance among investors, especially in a fast-rotating, theme-less market where passive investing is becoming more popular.

Public Funds: "Cheap" Doesn't Mean Buy Now

The biggest lure for capital willing to "catch a falling knife" on the left side is the extreme value created by the sell-off.

Data shows that, on a comparative basis, the Hang Seng Internet Technology Index has a PE-TTM of 23.21x, lower than the ChiNext Index's 37x and the STAR 50 Index's 133x.

Beyond valuation discounts, positive fundamental signals are quietly accumulating. A public fund executive in North China noted that investors should not focus solely on short-term price movements. While the market has been concerned about rising AI investment costs and unclear revenue timelines, second-quarter data suggests that at least some internet companies are beginning to show clearer revenue signals from AI commercialization.

Overall, Hong Kong internet stocks are in a phase of:

• Confirmed earnings bottom
• Valuation pullback
• Gradual verification of an AI revenue inflection point

Short-term volatility may persist, but after the recent correction, some positive changes have emerged. The fund manager believes that after this adjustment, Hong Kong internet stocks are showing early signs of AI revenue and earnings bottoming out, while valuations have returned to relatively low levels—likely one reason for the recent contrarian capital inflows.

GF Fund believes that with marginal improvements in earnings expectations, Hong Kong tech stocks have significant room for a rebound. Current valuation percentiles and trading congestion for Hong Kong tech are not high. Although earnings expectations for heavyweight Hong Kong tech stocks have been revised down due to headwinds like the food delivery price war, the latest financial reports show that revenue and earnings growth for some companies have stabilized, with AI becoming a new growth engine. As the AI industry trend improves and application commercialization accelerates, earnings expectations are likely to improve marginally, making the medium-term elasticity of Hong Kong tech earnings and stock prices worth watching.

However, "cheap" as it may be, investors are advised not to rush in.

A fund manager overseeing a Hang Seng Tech thematic fund in East China commented: "My judgment is that the left side has moved, but the right side is not yet clear—factors supporting a Hang Seng Tech rally are accumulating, but this is a medium- to long-term fundamental support, not a one-day move." He also warned of risks: a short-term reversal is still uncertain, the right-side trend signal has not yet emerged, and the market remains divided on "burning cash for the future." Moreover, global AI crowding is high; if U.S. tech stocks correct, Hong Kong tech will find it hard to remain immune.