This week's market review focuses on key developments in the financial markets.
**Will the Hang Seng Tech Index Finally Turn a Corner?**
This past Thursday, the Hong Kong stock market experienced a long-awaited significant rally. Spurred by factors such as earnings reports, share buybacks, and improved expectations for AI business segments, Alibaba's Hong Kong-listed shares opened sharply higher, gaining over 7% in early trading. This surge propelled the Hang Seng Tech Index to rise by more than 3%. Technology stocks in Hong Kong, which had been quiet for an extended period, once again captured market attention.
This resurgence has prompted many investors to revisit a perplexing question that has persisted for several years: Why, when comparing technology stocks, have U.S. tech indices soared relentlessly while their Hong Kong counterparts have languished? From its peak in February 2021, the Hang Seng Tech Index remains down over 50%, whereas the Nasdaq Composite Index has surged more than 100% over the same period. This stark divergence naturally leads to deep-seated confusion: Is the technological gap between China and the U.S. truly that vast?
A closer examination of the performance of China's A-share market over the past two years suggests that the "technology gap" explanation does not hold. In May of this year, both the ChiNext Index and the STAR 50 Index reached new all-time highs. Numerous Chinese technology companies in sectors like AI computing power, semiconductors, optical modules, robotics, innovative pharmaceuticals, and advanced manufacturing have seen their stock prices rise substantially, with some sub-sectors experiencing even more frenzied activity than in the U.S. market.
From an industrial perspective, China's technology sector is not lagging. On the contrary, the past few years have seen remarkable leapfrog development in areas such as new energy, AI applications, communication equipment, robotics, and semiconductor manufacturing within China. The issue with the Hang Seng Tech Index is not "Chinese technology being inferior" but rather a structural problem with the index itself. Its composition has gradually become disconnected from the global trends of the AI era.
A critical, often overlooked point is that despite its name, the Hang Seng Tech Index functions more as a "China Internet Platform Index." Its weightings have long been concentrated in traditional internet platform companies like Tencent, Alibaba, Meituan, JD.com, and Baidu. While these remain some of China's finest internet enterprises with massive user bases, strong cash flows, and deep moats, it is undeniable that these giants have entered a mature development phase rather than a high-speed expansion stage—often colloquially referred to as "old tech" stocks.
Over the past few years, the core driver behind the sustained rise of U.S. tech indices has not been traditional internet companies but the AI industrial revolution. Particularly since 2023, global capital markets have begun repricing technology assets around AI infrastructure. The explosive growth in NVIDIA's market capitalization is not solely due to profit increases but, more importantly, because the market perceives it as controlling the most critical production tools of the AI era. Companies involved in GPUs, HBM, high-speed optical modules, and AI servers occupy the most pivotal positions in the AI industry chain, leading capital to assign them extremely high valuations. In a sense, the current rally in U.S. tech stocks is essentially the global capital market's advance pricing of the AI productivity revolution.
In contrast, the Hang Seng Tech Index's problem lies precisely in its lack of truly core AI infrastructure companies. While Tencent, Alibaba, and Meituan are all engaged in AI and possess vast data, traffic, and application scenarios, the market tends to view them more as "AI applications" rather than participants in the "AI revolution." This industrial narrative is entirely different from companies like NVIDIA, AMD, and Micron, which directly control critical links in the supply chain. In other words, the issue with Hong Kong tech stocks is not "low technological content" but "a lack of exposure to the compelling narratives of the AI era."
Simultaneously, the Hong Kong market has undergone severe valuation compression in recent years. Post-2021, the global shift into a high-interest-rate environment, with rising U.S. Treasury yields and significantly tighter global liquidity, placed immense pressure on high-valuation growth stocks. Given the high proportion of foreign capital in Hong Kong, which is particularly sensitive to U.S. dollar liquidity, the valuation decline there has been far more drastic than in the A-share market. Additionally, factors such as stringent platform economy regulations, a deep adjustment in the real estate sector, and slowing consumption growth have led international capital to adopt a more conservative valuation framework for Chinese internet platform companies.
During the high-growth period from 2018 to 2020, companies like Tencent and Alibaba were positioned in global capital markets similarly to a "Chinese version of FAANG," receiving valuations typical of high-growth tech stocks. However, post-2021, an increasing number of international investors have begun to view them as "mature platform companies," even akin to high-cash-flow consumer businesses rather than high-growth tech firms. Consequently, the valuation logic has completely shifted. The market was once willing to assign price-to-earnings (P/E) ratios of 40x or 50x, believing in their limitless expansion. Today, Tencent trades at a P/E of around 16x, and Alibaba at about 22x, significantly lower than the average P/E ratios exceeding 100x for AI-related tech stocks in the A-share market.
Thus, the current situation is that companies like Tencent and Alibaba still possess strong profitability and even conduct share buybacks on a scale surpassing many U.S. companies, yet their stock performance remains persistently weak. This is because the capital market no longer prices them based on a "world-changing" narrative but rather on a "stable earnings" logic.
In comparison, the pricing mechanism for A-share tech stocks is entirely different. The A-share market inherently leans towards thematic investing and liquidity-driven moves. Many companies may not have high current profits, but if they are associated with hot themes like AI, robotics, import substitution, or new energy, they can rapidly achieve extremely high valuations. The logic behind A-share tech sector rallies revolves around growth potential, policy support, and industry trends, rather than current profitability. Therefore, within the same context of Chinese technological industrial upgrade, the A-share market speculates on the "future," while the Hong Kong market focuses on "present reality."
Currently, many genuinely high-growth, high-volatility segments of Chinese technology ultimately command higher valuations in the A-share market. For example, leading companies in optical modules, AI computing power, semiconductor equipment, humanoid robotics, and military electronics often trade at valuations far exceeding those of Hong Kong-listed internet platform companies. This is because A-share investors are more willing to pay a premium for the "future industrial revolution," whereas the Hong Kong market places greater emphasis on profit realization capability and cash flow certainty.
Therefore, the underperformance of the Hang Seng Tech Index in recent years is not fundamentally a sign of decline in China's tech industry but rather reflects the "end of the China internet platform era" and the "rise of the new quality productive forces era." Over the past decade, the core of China's tech industry was traffic, platforms, e-commerce, social media, and mobile internet. In the coming years, the truly high-growth directions within Chinese technology are likely to be AI computing power, robotics, semiconductors, advanced manufacturing, and new energy technology. This also explains why the A-share tech sector can sustain strength while the Hang Seng Tech Index struggles to escape low valuations.
Of course, the Hang Seng Tech Index's poor performance since 2021 does not mean Hong Kong tech stocks currently lack opportunity. On the contrary, after several years of significant adjustment, companies like Tencent, Alibaba, and Meituan now trade at valuations that are relatively low compared to global large-cap tech peers. These enterprises still possess extremely strong user bases, ecosystem advantages, and cash flow capabilities. Moreover, as AI gradually moves into the application phase, they may yet regain growth potential. For instance, Tencent owns China's strongest social ecosystem, Alibaba has a vast cloud computing and e-commerce data system, Meituan controls the local lifestyle services gateway, and Baidu has made long-term investments in large language models and autonomous driving. If AI truly enters a phase of large-scale commercial deployment in the future, these platform companies could potentially regain growth premiums from the capital market.
On the other hand, U.S. tech stocks are currently showing clear signs of "euphoria." The Nasdaq's substantial gains in recent years have largely relied on the continued explosive rise of a handful of core AI assets. The global concentration of capital into AI leaders itself indicates increasingly crowded trades. Historically, whenever the market begins to believe that "only a few tech giants will rise forever," it often signals the gradual accumulation of bubble risks. During the 2000 dot-com bubble, the market similarly believed the internet would fundamentally change the world. While the direction of the internet revolution was not wrong, the high-valuation bubble still burst.
Thus, the current global landscape for technology assets resembles a "three-way contest": U.S. stocks represent AI core infrastructure, with massive gains beginning to show signs of狂热; A-shares represent China's hard tech industrial upgrade, offering high volatility and弹性; Hong Kong stocks represent mature internet platforms, with slowing growth but low valuations and stable cash flows. Among the three, it is not a simple matter of "who is advanced, who is落后" but rather reflects the global capital market's different pricing methods for different stages of technological development.
The Hang Seng Tech Index's underperformance in recent years does not signify inferior Chinese technology. Instead, it marks a shift in the capital market's narrative center from the "internet platform era" to the "AI hard tech era." Whether Hong Kong tech stocks can genuinely regain strength in the future depends not on whether Tencent and Alibaba can continue to earn profits, but on whether companies listed in Hong Kong that can represent the core driving forces of the next wave of the AI revolution will emerge from among China's tech enterprises.
Risk Warning: The market carries risks, and investment requires caution. The content provided herein is for reference only and does not constitute investment advice for anyone. Investors who act based on this information do so at their own risk.
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