Since October 2025, the Hong Kong stock market has been undergoing a correction for nearly five months. The Hang Seng Index has declined by a cumulative 10.64%, the Hang Seng Tech Index has corrected by 29.48%, while the CSI Hong Kong Stock Connect Information Technology Composite Index, representing Hong Kong's hard tech sector, has experienced a more substantial correction of 31.86%. For the Hong Kong tech sector, both the depth and duration of this correction have surpassed those seen in the previous correction in February of last year.
Concurrently, capital is positioning for a potential strong rebound, particularly within Hong Kong's hard tech segment. As of March 23rd, the Hong Kong Information Technology ETF (159131), currently the only listed and tradable ETF of its kind in the market tracking this sector, has seen net inflows exceeding 120 million yuan over the past five days. Over the last 20 days, it has attracted over 290 million yuan, with the ETF's total assets under management now surpassing the 5 billion yuan mark.
The appeal for investors likely lies in the high elasticity of Hong Kong's information technology stocks. Following the end of the adjustment period last April, the rebound magnitudes for the Hang Seng Index, Hang Seng Tech Index, Hong Kong Stock Connect Internet Index, and the CSI Hong Kong Stock Connect Information Technology Composite Index were 37.62%, 51.83%, 56.11%, and 87.50%, respectively. Clearly, the CSI Hong Kong Stock Connect Information Technology Composite Index demonstrated superior short-term elasticity. The reason is that indices like the Hang Seng Tech or Hong Kong Stock Connect Internet inevitably include significant weights of large-cap internet companies. For investors seeking sharper focus, the CSI Hong Kong Stock Connect Information Technology Composite Index, which concentrates on the "Hong Kong chip and semiconductor" industry chain, may be a more suitable instrument. The recent concentrated capital inflows into the Hong Kong Information Technology ETF (159131), which tracks this index, are therefore understandable.
Looking ahead, Cao Xuchen, the fund manager of the Hong Kong Information Technology ETF (159131), analyzes that the first half of the year represents the most challenging period for Hong Kong stocks in terms of capital flow dynamics and earnings performance. It is also the point where downstream companies feel the most significant pressure from upstream industry conditions. However, the fundamental outlook for both Hong Kong internet and information technology stocks may begin a gradual improvement starting in the second quarter. A lack of strong fundamental logic has been a key weakness for Hong Kong stocks, but current valuations and price levels provide a foundation for future elasticity. As the tech sector has already distinctly separated high-growth from low-growth segments, the next valuation re-rating for the tech sector may be difficult to generate endogenously. Sectors like FinTech and securities, which fall under the broader financial umbrella, could potentially provide important signals for pulling up overall valuations.
From a valuation perspective, the underlying index of the Hong Kong Information Technology ETF (159131) currently has a latest price-to-earnings ratio of 30.63 times. This places it at approximately the 22.93rd percentile over the past three years, indicating a significant expansion of the potential upside gap to the high point seen in February 2025, now estimated at around 60%.
Finally, whether the correction in Hong Kong stocks has fully run its course may still require observation. However, at the current juncture, the investment attractiveness, or value proposition, of Hong Kong's hard tech sector is gradually becoming more apparent.
