The U.S. midterm election results are reshaping the trajectory of global capital markets.
In this midterm election, the Democratic Party performed significantly better than market consensus, not only controlling both the Senate and the House of Representatives, but also securing multiple governor seats in traditionally red states.
The previously widely priced-in scenario of a divided Congress has been broken, and global major asset classes have simultaneously entered a phase of pricing correction.
Different assets show markedly different sensitivity to the election results.
Assets suppressed by rate hike expectations and geopolitical premiums are entering a repair window, while sectors that benefited from deregulation expectations now face valuation pullbacks.
Among major equity indices, the Hang Seng Tech Index has the smoothest repair logic with relatively low upward resistance, and is expected to be the direction with stronger elasticity in this midterm election-driven rally.
AI Computing Power Expansion Meets Policy Constraints
After this election, the Democratic Party has achieved full control over the federal Congress and multiple key state executive branches, significantly reducing policy implementation resistance.
At the congressional level, Democrats have gained clear advantages in both the Senate and the House, and legislative agenda advancement efficiency will be greatly enhanced.
At the governor level, deep-red states such as Texas that had long been governed by Republicans have undergone party turnover, and local governance orientation has shifted accordingly.
Data center approvals, water and electricity resource controls, and similar matters mostly fall under state and local government jurisdiction, and changes in local political power have an even greater direct impact on computing infrastructure than federal legislative adjustments.
The Democratic Party has long paid attention to the external costs brought by AI industry expansion, and there is broad intra-party consensus on the direction of tightening regulation.
Previously constrained by congressional division and local resistance, related regulatory proposals mostly remained at the discussion stage and could not enter substantive implementation.
After this election victory, policy constraints at both federal and local levels will be strengthened simultaneously, slowing the pace of AI data center construction from multiple dimensions.
Construction approval requirements will become stricter.
The environmental impact assessment process for large data center projects will be lengthened, public hearing periods extended, and project site selection will need to meet more stringent ecological protection and resident impact standards.
Large-scale ultra-mega computing clusters, especially projects near water sources, residential areas, and ecologically sensitive zones, will face significantly higher approval difficulty.
Projects already under construction with completed approvals will be relatively less affected, but the implementation pace of long-term reserve projects will generally be pushed back.
Resource usage rules will push project cost internalization.
New regulatory rules may clarify water usage quotas and electricity efficiency standards for large data centers, mandating supporting water-saving facilities and energy storage systems.
The related costs of power grid expansion and water resource allocation will be fully borne by data center operators, no longer shared with ordinary residents and businesses through public resource pricing.
The systematic rise in operating costs will lower the return on investment for computing power projects, and some projects with tight revenue projections will lose commercial viability.
Tax incentives and local subsidies will be scaled back.
At the federal level, accelerated depreciation and investment tax credit policies for data center equipment may face adjustments, and large computing power projects will no longer enjoy special tax benefits.
At the state level, previously introduced investment attraction policies such as land concessions, tax reductions, and fiscal subsidies for computing power investment may also gradually retreat.
Rising tax costs will directly affect the cash flow models of computing power projects, further suppressing corporate expansion willingness.
Over the past two years, the core pricing anchor for the global technology sector has been the sustained high growth of AI capital expenditure.
Market earnings forecasts for computing power chips, server manufacturers, and IDC operators are all built on the assumption of stable data center construction pace and rapid release of computing power supply.
Tighter regulation will directly hit this core assumption, and the growth center of the AI hardware sector needs to be reassessed.
The previously accumulated high valuations face digestion pressure, and internal divergence in the technology sector will continue to intensify.
The Triple Repair Logic of Hang Seng Tech
In this round of global asset repricing, the Hang Seng Tech Index benefits simultaneously from threefold support: liquidity improvement, style rotation, and valuation repair, with relatively advantageous certainty and space for upside.
Inflation governance tools are becoming more diverse, and the Federal Reserve's policy pivot pace is expected to accelerate.
In the trade area, in order to respond to voter concerns, the legislative process for reducing tariffs on some imported goods will accelerate, lowering price pressure from imported goods.
In the geopolitical area, room for regional conflict de-escalation is expanding, and the geopolitical supply premium for crude oil and other commodities will gradually narrow.
In the fiscal area, congressional constraints on fiscal spending are strengthening, and the risk of excessive expansion driving up inflation is declining.
These policies alleviate inflation pressure from the supply side without relying on sustained high interest rates to suppress demand, and market expectations for the timing of Federal Reserve rate cuts will be brought forward, with rate cut space also expected to expand.
Hang Seng Tech valuations are highly sensitive to dollar liquidity and U.S. Treasury real rates, and the recovery of rate cut expectations will provide direct support for the index's upward movement.
The rotation in global equity market allocation style will bring incremental allocation funds to Hang Seng Tech.
The constituent structure of Hang Seng Tech is dominated by internet platforms, enterprise service software, and online consumption and entertainment businesses, with an extremely low proportion of AI hardware-related computing power chip and server manufacturing targets.
In the past AI rally, global funds concentrated on computing power hardware, chasing earnings elasticity brought by supply expansion, and Hang Seng Tech remained underweighted for a long time due to lack of direct hardware elasticity.
As expectations for AI hardware expansion cool, funds will gradually flow out of high-valuation hardware sectors and turn to software and consumer assets with stronger earnings certainty and lower valuations.
The industry structure of Hang Seng Tech fits this allocation shift and is expected to absorb incremental inflows brought by global fund reallocation.
Previous oversold conditions and low valuations provide a safety margin and elasticity space for index repair.
Since October 9, 2025, the Hang Seng Tech Index has underperformed the CSI 300 by more than 10 percentage points.
During the same period, domestic internet industry profitability remained stable, revenue and profit growth of leading companies were in line with market consensus expectations, and the regulatory environment continued to improve.
The index's significant underperformance lacks fundamental support, and oversold characteristics are evident.
At the valuation level, the current forward price-to-earnings ratio of the Hang Seng Tech Index is only 16.70 times, at the 11.90% historical percentile over the past three years, close to the historical bottom range, and has already priced in considerable negative expectations.
As the external environment improves marginally, valuation repair momentum is strong, with ample upward elasticity.
In summary, the policy shift brought by this U.S. midterm election benefits the Hang Seng Tech Index from multiple dimensions including liquidity, market style, and valuation repair.
The upward logic for the Hang Seng Tech Index is relatively smooth, with relatively less resistance.
As policy details are gradually implemented, the index repair rally is expected to continue, and the medium-to-long-term upside space is worth watching.
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