How to View the Future Trend of the Hang Seng Tech Index?

From the temporary peak on October 2, 2025, to March 2, 2026, the Hang Seng Tech Index experienced two rounds of deep corrections driven primarily by valuation factors, with a cumulative maximum drawdown reaching 28%.

Huatai Securities believes that, at this juncture, the window for a structural reversal in the HSTECH index may still be pending. AI-related expectations have nearly bottomed out, but consumer earnings outlook remains fragile; the narrative of \"cheap valuation\" alone is insufficient to sustain a prolonged market rally. Quantitative analysis indicates that the stabilization range for the HSTECH Index is approximately 4,500 to 4,850 points, with a neutral scenario around 4,690 points—still some distance from current levels, though the gap is limited.

Analysts warn that the core contradiction in today’s market lies in: valuations have already become reasonable, yet earnings expectations have not yet reached their floor. Relying solely on the \"cheap valuation\" story cannot drive a sustainable index-level rally. The period from late March to early April will be a concentrated validation phase—capital expenditure guidance from major tech firms, whether the \"subsidy war\" among internet giants has peaked, and developments in China-U.S. trade relations will constitute three key determinants of whether a rebound can be realized.

First Round (October 2, 2025 – November 21, 2025): Lasting 50 days, the index fell by 19.3%, with valuation (PE) contributing -19.4% and earnings (EPS) contributing +0.1%, indicating near-total dominance by valuation contraction.

This round exhibited clear global β characteristics—Fed Chair Powell issued a hawkish signal, the U.S. dollar index rose above 100 from 97.8, and major global tech indices simultaneously contracted valuations.

Huatai attributes the deeper decline in HSTECH primarily to the renewed escalation of U.S.-China trade tensions, along with tariff pressures and deteriorating fundamental expectations in consumer electronics, home appliances, and automotive sectors. Meanwhile, other global tech indices saw upward revisions in earnings expectations during this period, further widening the divergence.

Second Round (January 14, 2026 – March 2, 2026): Lasting 47 days, the index dropped 15.6%, with PE contributing -16.7% and EPS contributing +1.1%.

This round revealed a stronger α profile—during the same period, South Korea’s Kospi surged 32%, Taiwan’s weighted index rose 13%, highlighting a pronounced \"soft vs. hard tech\" split.

The main drag came from internet consumption and integrated platforms: intensified \"subsidy wars\" during the Lunar New Year led to heightened internal competition; skepticism toward big tech firms’ ability to monetize AI capital expenditures grew; compounded by regulatory pressure related to anti-internal competition and anti-monopoly measures, valuations were severely compressed. In contrast, relatively resilient sectors included automobiles (top-tier manufacturers delivered ahead of expectations in January–February) and semiconductors (unseasonably strong performance in Q4 2025).

Huatai Securities emphasizes that understanding the volatility logic of the HSTECH Index requires first recognizing its two core structural features:

First, high weightings in internet and software, with weak hard-tech exposure. By market cap weighting, internet conglomerates (19.8%), internet consumer services (18.7%), and software & media (18.6%) together account for nearly 57%, far exceeding typical hard-tech indices.

Second, significant consumer orientation. Internet consumer services plus consumer-oriented sectors—automobiles (18.3%) and consumer electronics/appliances (14.4%)—total about 51%. AI-themed segments (AI hardware + AI software) combined weigh less than 50%, with software weighting higher than hardware. This structure implies that HSTECH responds to AI narratives with a \"soft-tech bias\" and is more dependent on consumer sentiment.

Post-analysis of two prior rallies confirms this view: During DeepSeek’s breakout rally (January–March 2025), the HSTECH rose 45% cumulatively, with internet giants contributing 11%, consumer electronics and appliances ~10%, while high-weight internet consumer services lagged significantly; in the second re-rating surge (June–October 2025), internet giants and semiconductors were the main drivers, contributing 10% and 8% respectively, while autos, internet consumer services, and consumer electronics/appliances remained \"stagnant\".

Technology Valuation Near Bottom, Consumption Still Concerning

Huatai Securities notes that in the technology sector, despite a 27% correction from its peak, AI hardware valuations remain above pre-DeepSeek first re-rating levels, suggesting markets continue pricing in the scarcity of domestic substitution.

As of March 3, 2026, the forward 12-month P/E for AI hardware stood at 32.6x, down 27% from its October 2, 2025 peak, but still above the high point of DeepSeek’s initial re-rating phase, hovering near the central level of the Q3 2025 upward revision in compute demand.

Markets continue actively pricing in the scarcity of domestic AI hardware capacity and potential for indigenous substitution, pushing up the valuation benchmark. Compared globally, China’s AI hardware valuation premium has narrowed slightly during the second correction wave, gradually completing pricing for differences in advanced process expansion capabilities and downstream demand between domestic and international players.

In the consumer sector, valuations have fallen into pessimistic territory, but the key issue remains unsteady earnings expectations—consumer electronics and home appliances face the greatest pressure, while autos and internet consumer services show preliminary signs of stabilization.

The forward 12-month expected P/E for strong consumer-facing segments currently stands at 15.3x, having dropped sharply from 20.3x in early October 2025, below the level when the new rally began in mid-June 2025, and with less than 5% room for further downward adjustment compared to the panic-driven lows seen in April 2025. Valuation pessimism is largely priced in, but earnings expectations remain the primary constraint—consumer electronics and home appliances bear the heaviest burden, whereas autos and internet consumer services have shown early signs of stabilization.

Quantitative Analysis: Stabilization Target Range of 4,500–4,850 Points

Huatai Securities conducts a bottom-up sensitivity analysis on the HSTECH Index’s stabilization level (excluding geopolitical variables):

AI Software: Second-round re-rating premium has largely been absorbed; using this as the base case, impact on HSTECH ≈ -0.2%;

AI Hardware: Using the low point before the main rally in September 2025 as the floor, under a neutral scenario (valuation down 5% then stabilizing), potential impact on HSTECH ≈ -0.7%;

Strong Consumer-Facing Segments: Assuming a 10% ceiling for earnings expectation downward revision, under a neutral scenario (earnings expectation down 5% then stabilizing), potential impact on HSTECH ≈ -2.9%.

Combining all three components, the sensitivity matrix suggests a stabilization range for HSTECH of approximately 4,500 to 4,850 points, with a neutral estimate around 4,690 points.

Rebound Conditions: Low Positioning and Positive Catalysts Are Both Essential

Huatai warns that southbound funds have been consistently \"buying the dip\" since August last year, approaching full allocation. Should a rebound occur, they may lock in profits, limiting the upside potential of any recovery.

The report stresses that a genuine rebound requires convergence of three conditions: expectations of intense internal competition peaking, positive real-world applications emerging from big tech’s large models, and stabilization in China-U.S. economic and trade relations. Until then, Huatai’s Hong Kong equity sentiment timing system—delivering an annualized excess return of 11% since 2020—remains in a \"hold\" signal.