Using ETFs to increase positions against the trend, over 100 billion yuan in funds have been deployed! What's the next step?

Since October last year, Hong Kong stocks and A-shares have experienced a clear “scissors gap” market trend, with the Hang Seng Tech Index continuously adjusting.

Wind data shows that since October 2025, the Hang Seng Tech Index has fallen nearly 20%, with nearly 10 constituent stocks such as Kingdee International, Sunny Optical Technology, Tencent Music, and Xiaomi Group dropping over 30%. Meanwhile, over 100 billion yuan of funds have continued to buy the dip, with approximately 144.6 billion yuan flowing into the Hong Kong stock market via ETFs.

Multiple Factors Impact the Hang Seng Tech Index

On February 20, the first trading day of the Year of the Horse, the Hang Seng Tech Index fell 2.91%, with internet technology stocks broadly declining. Baidu Group dropped over 6%, Alibaba fell nearly 5%, semiconductor stocks weakened, with Huahong Semiconductor down nearly 6% and Semiconductor Manufacturing International Corporation down over 3%.

Looking at the longer term, since October 2025, the Hang Seng Tech Index has declined nearly 20%, with nearly 10 constituent stocks such as Kingdee International, Sunny Optical Technology, Tencent Music, and Xiaomi Group dropping over 30%.

Xu Tingquan, fund manager of HSBC Jintrust Hong Kong Stock Connect Select Fund, believes that the recent adjustment in Hong Kong stocks can be analyzed from both internal and external factors:

On one hand, recent market panic was triggered by uncertainty over the policy direction of the newly proposed Federal Reserve Chair nominee, fearing further tightening of global liquidity due to balance sheet reduction. The previously expected rate cuts may also be delayed, causing significant volatility in precious metals and overseas tech stocks. As Hong Kong stocks are often influenced by overseas investor sentiment, they naturally were affected. Among them, large internet giants with better liquidity and higher weights became one of the sources of overseas institutional funds forced to replenish liquidity due to the collapse of precious metals and other major asset classes.

On the other hand, rumors of increased VAT on gaming and advertising have deepened market panic under poor sentiment. However, even with the tax increase, the potential impact on major gaming companies’ profits is limited and manageable. Additionally, overseas investors have recently become concerned about traditional software firms due to the significant improvement in large model capabilities. Under emotional trading, we see irrational sharp declines in software service providers within the Hang Seng Tech Index. Before the Spring Festival, subsidies for large model traffic entry among major companies also raised concerns about competitive dynamics among investors.

CICC believes that public funds’ allocation to Hong Kong stocks exceeds the benchmark significantly, leading to substantial selling pressure, which is an important narrative for the market’s headwinds at the end of 2025. As of the third quarter of 2025, actively managed equity funds totaled 3.59 trillion yuan. Based on each fund’s benchmark, the Hong Kong stock holding benchmark was 356 billion yuan, but actively managed funds held 594 billion yuan, far exceeding the benchmark. This resulted in some funds being restricted by new regulations, leading to selling Hong Kong stocks and reallocating into A-shares. In practice, southbound funds experienced rare weekly net outflows in December, further confirming this narrative and being a key reason for the phased headwinds in the Hong Kong tech sector.

Meanwhile, some fund managers also pointed out that recently, companies Zhipu and MiniMax released their large models, and both Tencent and Alibaba, which also have large model businesses, experienced significant stock price declines. The “red envelope battles” among several highly anticipated tech giants are also a drain on corporate cash flow.

Over 100 Billion Yuan of Funds Continue to Buy the Dip

While the Hang Seng Tech Index has been adjusting, hundreds of billions of yuan of funds have continued to buy the dip against the trend.

Wind data shows that since October 2025, ETFs tracking indices such as the Hang Seng Tech Index, CSI Overseas China Internet 50 Index, and Hang Seng Hong Kong Stock Connect Technology Theme Index have received a net inflow of 144.6 billion yuan. Among them, China Asset Management’s Hang Seng Tech ETF, Huatai-PineBridge Hang Seng Tech ETF, and Tianhong Hang Seng Tech ETF each received over 15 billion yuan in net inflows.

CICC believes that ETFs listed overseas tracking Chinese assets have been continuously inflowing since July 2025, with a cumulative net inflow exceeding 14 billion USD. The peaks of foreign capital inflows over the past two years were in September 2024 (policy shift) and March 2025 (DeepSeek moment), both characterized by rapid in-and-out movements. The latest slow and sustained net inflows confirm China’s market shifting from “tradeable” to “investable.”

“Essentially, the recent adjustments are mainly due to non-fundamental factors, and the impact of capital flows still needs to be observed. After recent corrections, valuations of some large internet companies are below 15 times PE, making future growth expectations more attractive. Moving forward, we still need to monitor factors such as Federal Reserve policy changes, internet regulation, and tax policies,” Xu Tingquan said.

Wind data shows that, in terms of absolute valuation, the current PE of the Hang Seng Tech Index is 21.51X, at the 19.31% percentile since listing. In relative valuation, if measured by the PE ratio of the Hang Seng Tech Index to the A-share ChiNext Index, the current level is close to historical lows, with previous lows in March 2022, October 2022 (rapid foreign outflows), and late 2023 (gaming regulation). The regulatory environment for internet companies and economic conditions are significantly better now than in 2022 and 2023.

Xingye Fund manager Xu Chengcheng believes that internet, biotech, high-end manufacturing, and early-stage tech companies in Hong Kong are scarce assets compared to A-shares. Especially when combining downstream AI applications with China’s large industrial base, there can be significant resonance and strong growth potential. Under the long-term trend of technological development, iterative updates of AI large models may trigger a rally in AI applications led by internet companies.

“Over the past few years, the Hong Kong stock market has experienced an investment boom, fundamentally reflecting the scarcity of Hong Kong assets and their good fit with the stage of technological development. Particularly in the tech sector, certain Hong Kong stocks may have higher intrinsic value,” he said. Moreover, for the same industry and companies, Hong Kong stocks tend to be cheaper and offer better cost performance compared to A-shares.

(Source: Securities Times)