Hong Kong stocks opened lower on March 20, with the technology sector underperforming. Alibaba-W slumped over 6% after reporting third-quarter revenue and profit below expectations, while Xiaomi Group-W fell more than 5%. Tencent Holdings edged up 0.58%. The Hong Kong Internet ETF (513770), a key tool for accessing Hong Kong AI stocks, opened lower and extended losses, declining 1.98%.
Alibaba's financial results for the third quarter of fiscal year 2026, ending December 2025, showed quarterly revenue of 284.84 billion yuan, a 2% year-on-year increase. However, adjusted net profit plunged 67% to 16.71 billion yuan. Adjusted EBITA dropped 57% to 23.397 billion yuan.
Despite overall profit pressure from increased strategic investments, the AI and cloud computing business emerged as the brightest growth spot this quarter. Revenue from the Cloud Intelligence Group surged 36% year-on-year, with income from AI-related products achieving triple-digit growth for the tenth consecutive quarter. This solidifies AI's role as a core growth engine for Alibaba.
Huatai Securities noted that while firm near-term investments may cause some volatility in profitability, Alibaba, as a leader in China's AI infrastructure, is poised to gradually convert its early-stage investments into profit outcomes. This is expected to help Alibaba Cloud's profit margins move closer to those of overseas cloud providers, potentially reaching around 20% in a steady state.
Regarding the main AI investment theme in Hong Kong, both Tencent Cloud and Alibaba Cloud recently announced price increases. Soaring token usage is driving cloud product prices higher, highlighting the stronger commercialization capabilities of leading internet companies during the AI cycle. This could lead to a market reassessment of the profit quality of Hong Kong's tech sector.
The Hong Kong technology sector remains in a consolidation phase. As of March 18, the Hang Seng Stock Connect Hong Kong Internet Index had a trailing P/E ratio of 22.03 times, near a five-year low at the 10.73 percentile. This valuation is significantly lower than that of U.S. tech stocks, represented by the Nasdaq 100, and A-share tech stocks, represented by the ChiNext Index, indicating substantial safety margins.
To capitalize on the anticipated first year of AI commercialization in 2026, investors are focusing on core AI tools in Hong Kong. The Hong Kong Internet ETF (513770) and its feeder funds (Class A: 017125; Class C: 017126) passively track the CSI Hong Kong Stock Connect Internet Index. Its top ten holdings include tech giants like Alibaba-W, Tencent Holdings, Xiaomi-W, Kuaishou-W, and Bilibili-W, alongside AI application companies from various sectors, offering significant leading advantages. The ETF offers T+0 trading with good liquidity.
For investors bullish on Hong Kong tech but seeking to reduce volatility, the Hong Kong Large Cap 30 ETF (520560) presents an option. It employs a "Tech + Dividend" barbell strategy, holding high-growth tech stocks like Alibaba and Tencent alongside stable, high-dividend stocks such as China Construction Bank and Ping An of China, making it a suitable core holding for long-term Hong Kong exposure.
Investors are reminded that recent market volatility may be high, and short-term price movements are not indicative of future performance. It is essential to invest rationally based on individual financial circumstances and risk tolerance, with careful attention to position sizing and risk management.
Data source: Shanghai and Shenzhen Stock Exchanges, etc.
ETF fee note: Subscription and redemption agents may charge a commission of up to 0.5%, which includes fees levied by stock exchanges and registration institutions. Feeder fund fee note: For the Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class A), the front-end subscription fee is a flat 1,000 RMB for subscriptions over 2 million RMB, 0.6% for 1-2 million RMB, and 1% for subscriptions below 1 million RMB. The redemption fee is 1.5% for holdings under 7 days and 0% for holdings of 7 days or more; no sales service fee is charged. The Huabao CSI Hong Kong Stock Connect Internet ETF Feeder Fund (Class C) charges no subscription fee; the redemption fee is 1.5% for holdings under 7 days and 0% for holdings of 7 days or more; the sales service fee is 0.3%.
Risk warning: The Hong Kong Internet ETF passively tracks the CSI Hong Kong Stock Connect Internet Index (base date: December 30, 2016; launch date: January 11, 2021). The index constituents are adjusted periodically according to its compilation rules. The mention of index constituents is for illustrative purposes only and does not constitute investment advice or indicate the holdings or trading activities of the fund manager. The fund manager assesses this fund's risk level as R4 (Medium-High Risk), suitable for Aggressive (C4) and higher risk-profile investors. All information presented is for reference only, and investors are solely responsible for their investment decisions. The views, analysis, and forecasts herein do not constitute investment advice, and no liability is accepted for any direct or indirect losses resulting from the use of this content. The past performance of other funds managed by the fund manager is not a guarantee of this fund's future performance. Fund investment carries risks, and caution is advised.
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