Hong Kong stocks fall, but Hang Seng Tech ETF shares hit record highs on bargain hunting

During the Mid-Autumn Festival holiday, while A-share investors enjoyed a rare break from trading, Hong Kong stocks closed in the red again.

On September 25, the Hang Seng Index fell 1.01%, and the Hang Seng Tech Index dropped 1.13%. The broad decline dampened the mood for many investors still on holiday.

Since the beginning of September alone, the Hang Seng Tech Index has fallen by more than 6%. Paradoxically, while the market continues to slide and sentiment remains low, Hang Seng Tech ETFs have seen a starkly contrasting trend: massive inflows of capital, with several products recording monthly share increases of billions.

Why do investors keep buying as the index falls back to square one?

Industry insiders point out that Hong Kong-listed internet stocks are currently in a phase where earnings are bottoming out, valuations are declining, and AI revenue inflection points are gradually being confirmed. While prices may appear "cheap," a near-term reversal is not yet certain. Even with valuations at historical lows, clear right-side trend signals have yet to emerge.

ETF Investors "Grow Stronger with Every Setback"

The Hang Seng Tech Index has corrected significantly recently, erasing the rally that began in late June and lasted about a month and a half. Over a longer timeframe, the index has slowly fallen back to levels seen two years ago, 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:

• The shares of ChinaAMC Hang Seng Internet Technology ETF surged by 5.176 billion units this month.
• Huatai-PineBridge Hang Seng Tech ETF saw its shares increase by over 4 billion units.
• ChinaAMC Hang Seng Tech ETF and Dacheng Hang Seng Tech ETF also recorded share increases of over 1.1 billion units each.

E Fund Management believes that recent rises in U.S. energy prices have driven up inflation expectations, rapidly intensifying expectations of a Fed rate hike. The 10-year U.S. Treasury yield once approached 5%, creating significant valuation pressure on long-duration assets like Hong Kong tech stocks. The current adjustment in Hong Kong stocks is largely driven by concentrated shocks to overseas liquidity and risk appetite. If rate hike expectations do not rise further, tech assets previously suppressed by higher rates may have some room for valuation recovery.

"As net asset values decline, many investors choose to add positions rather than cut losses, and previous capital has been locked in," said a channel source from a public fund in East China. He noted that retail investors are widely adopting a "grid trading" style of dollar-cost averaging—adding positions each time the ETF's NAV falls by a preset margin—which directly boosts ETF on-exchange shares.

Another research report suggests that inflows into stock ETFs are negatively correlated with market volatility. The primary reason is that ETF returns inherently depend on expectations of market or index upside. Therefore, when the market falls, the investment cost-effectiveness gradually improves, creating a negative correlation. Secondly, ETFs are becoming more widely accepted by investors, especially in a fast-rotating market lacking a clear theme, where passive investment concepts are gradually taking root.

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

The willingness of capital to "catch a falling knife" on the left side is largely driven by the extreme cost-effectiveness created by the decline.

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

Beyond valuation discounts, positive fundamental signals are also quietly accumulating. "When looking at Hong Kong internet stocks now, you can't just focus on short-term price fluctuations," said a source from a public fund in North China. He pointed out that the market's core concern has been the increasing investment in AI without clear revenue timelines. However, based on Q2 data, at least some internet companies are beginning to show clearer revenue clues from AI commercialization.

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

• Confirmed earnings bottom
• Declining valuations
• Gradually verified AI revenue inflection points

Short-term market volatility may persist, but after the recent adjustment, some positive changes have emerged. The fund manager believes that after this correction, Hong Kong internet stocks show initial signs of AI revenue and earnings bottoming out, while valuations have returned to relatively low levels—likely one reason for 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. Previously affected by negative factors such as the food delivery price war, earnings expectations for heavyweight Hong Kong tech stocks were continuously revised down. However, the latest financial reports show that revenue and earnings growth for some companies have stabilized, and AI businesses have become a new growth engine. As AI industry trends improve and application commercialization accelerates, earnings expectations are likely to see marginal improvement, making the medium-term elasticity of Hong Kong tech earnings and stock prices worth watching.

However, despite the appeal of "cheap" valuations, rushing in is not advised.

A fund manager in East China overseeing a Hang Seng Tech thematic fund 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, which is a medium- to long-term fundamental support, not a one-day event." He also warned of risks: a short-term reversal cannot be easily declared, right-side trend signals have 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, Hang Seng Tech will find it difficult to remain unaffected.

Disclaimer: All content in this column is for reference only and does not constitute investment advice. Investing involves risk. Enter the market with caution.

Proofread by: Wang Chaoquan