The reasons behind Hengke's ongoing adjustments revealed! When will it stabilize? It may be highly related to this characteristic.

Since October 2025, the Hang Seng Tech Index has been continuously declining, with a total drop of over 23%. ETFs tracking the Hang Seng Tech Index have also experienced heavy losses. Why does the Hang Seng Tech Index keep falling, and when will it stop?

Hang Seng Tech Index Performance Since October 2025 Ranks Lowest Globally

Since reaching a temporary high in early October 2025, the Hang Seng Tech Index (or “HSTECH”) has entered a deep correction. It was once the “face” of Hong Kong’s tech sector, comprising leading companies with market caps over HKD 100 billion, including internet giants like Alibaba, Xiaomi, Baidu, JD.com, as well as semiconductor leaders like SMIC and Hua Hong Semiconductor. It reflected the strength of Hong Kong’s tech sector.

However, this luxurious lineup of constituent stocks has failed to support a stable trend. From early October 2025 to March 13, 2026, the index has fallen over 23%, with only one month of gains. In October 2025, it dropped 8.62%, and in November, it declined over 5%. February 2026 saw a decline of more than 10%, and March continued to fall by over 3%.

Compared globally, the Hang Seng Tech Index’s performance is nearly at the bottom among major indices, with the Hang Seng Index only falling less than 5.2% during the same period. In contrast, the Shanghai Composite Index and Shenzhen Component Index rose against the trend, with gains exceeding 5%. Many investors jokingly say they are hiding in the “tech bubble” during this “tech bear market.”

The continuous decline has also caused many investors who have allocated to the Hang Seng Tech sector to see their holdings’ value shrink or even incur losses.

Market data shows that more than ten ETFs tracking the Hang Seng Tech Index have also suffered heavy losses since October 2025, with an average decline of about 24%. Some ETFs have fallen over 26%, such as the Hu An Hang Seng Tech ETF via Stock Connect, which has declined over 28%. The GF Fund Hang Seng Tech ETF and the Hang Seng Tech Index ETF have both declined over 26%.

More Downs Than Ups Since the Index’s Launch

Looking back at historical performance, the Hang Seng Tech Index has often underperformed the market significantly.

From early February 2021 to the end of March 2023, the index was halved, with only rebounds in April and June 2021, and October 2021.

Prior to that, based on constituent stocks, from November 2017 to April 2018 and June to October 2018, the index declined by 11.05% and 30.27%, respectively.

In these periods, the index significantly lagged behind the Shanghai Composite and the leading tech indices in A-shares. For example, from early February 2021 to March 2023, the Shanghai Composite fell less than 7%, and although A-share tech leaders also corrected, they still outperformed the Hang Seng Tech Index by a large margin.

For investors holding related products, each rebound of the Hang Seng Tech Index has been a pleasant surprise, but the gains are often short-lived before the index declines again. For example, on March 6, 2026, the index surged 3.15%, but the next trading day (March 9) opened higher and then fell. On March 10, it rose another 2.4%, but from March 11 to 13, it declined for three consecutive trading days.

Monthly data shows that from July 2020 (when the index was officially launched) to March 2026, out of 69 months, the Hang Seng Tech Index rose in only 32 months, with over 53% of months showing declines. During the same period, the Shanghai Composite’s declining months accounted for less than 44%, and the S&P 500’s decline months were about 36%.

Three Main Reasons for the Hang Seng Tech Index’s Downtrend

Why does the Hang Seng Tech Index keep falling? Is it a common correction for global tech stocks, or is it trapped in a unique downward cycle? Since October 2025, why has there been a significant outflow of funds? Through multi-dimensional analysis, the main reasons for the decline are identified as follows:

1. Previous High Gains and Profit-Taking Needs
   From early 2025 to the third quarter, the index gained nearly 45%, ranking among the top globally, far outperforming the US major indices and the Nikkei 225. About two-thirds of the constituent stocks gained over 30%, and one-third gained over 100%.

2. Market Theme Shift — “From Soft to Hard”
   Since Q4 2025, the global market focus has shifted from high-flying internet platforms, semiconductors, and new energy vehicle chains to sectors like commercial aerospace and precious metals.

Within the Hang Seng Tech Index, only 3 of the 30 stocks have risen since October 2025: Haier Smart Home, Midea Group, and Hua Hong Semiconductor. Hua Hong Semiconductor saw the largest increase, but only 10%.
Meanwhile, 20 stocks declined over 20%, with 9 dropping more than 30%. Notably, Kingdee International, Tencent Music-SW, Xiaomi Group-W, and Sunny Optical Technology all fell over 35%, dragging the index down.
Industries with the largest declines include consumer electronics, internet services, e-commerce, and passenger vehicles.

3. Concerns Over Profit Growth
   Based on disclosed 2025 net profits and consensus forecasts, the overall net profit growth of the index’s constituents in 2025 is less than 10%. For 2026, the expected YoY growth remains below 20%, significantly lower than the 52.07% growth in 2024. This indicates that institutions have lowered their profit recovery expectations for these companies.

While the decline is partly due to market correction and changing fundamentals, deeper reasons relate to the structural features of the index’s constituents.

According to Huatai Securities, the Hang Seng Tech Index has a relatively low proportion of “hard tech” and is heavily consumer-oriented. The recent correction aligns with a slowdown in AI trading and a divergence between “soft” and “hard” tech sectors. Structurally, the mix of tech and consumer stocks creates two different logical trends.
From a macro perspective, the index is sensitive to geopolitical tensions and US-China trade relations, requiring stability or positive developments in these areas.

Zairui Xing Investment believes that the core reason for the continued decline is not the overall weakness of the tech sector but the structure of the Hang Seng Tech Index, which is composed of 30 representative high-tech internet stocks.

High-Quality Tech Leaders with Low Valuations Emerging

Despite the ongoing correction of the Hang Seng Tech Index, the internal structure of A-share tech stocks shows clear differentiation: some high-valued sectors are volatile, while high-quality, reasonably valued, high-growth, and lagging stocks are gradually becoming attractive for allocation.

Comparing the Hang Seng Tech Index with the A-share Tech Leaders Index, the Tech Leaders Index, and the S&P 500 reveals a strong correlation and linkage, especially during recent dips.

For example, in February and March 2026, when the Hang Seng Tech Index declined, the Tech Leaders Index also weakened; in September 2025, both rose over 10% in a month; and in October-November, they moved in sync during corrections, showing strong resonance between Hong Kong and A-share tech sectors.

The Tech Leaders Index mainly includes stocks in semiconductors, software development, IT services, communications equipment, and consumer electronics—core tech sectors—differing significantly from the Hang Seng Tech Index’s internet and platform focus. This structural difference provides independent fundamental and valuation support for A-share tech leaders.

Currently, the Hang Seng Tech Index’s P/E ratio is about 21x, well below its historical median (28.5x) and average (~32x). In contrast, the Tech Leaders Index’s P/E ratio is around 51x, above its three-year average (~41x).

Regarding when the Hang Seng Tech Index might stop falling, Huatai Securities believes that the negative adjustment in AI expectations is nearing its end. The key to re-rating AI lies in industry catalysts: progress in large models and applications for AI software, and further capital expenditure in domestic AI hardware.

While Hong Kong stocks fluctuate and bottom out, the structural opportunities in A-share tech are clearer. Among the tech leader stocks, some undervalued, high-growth, lagging stocks have already shown strong allocation value.

According to Data Treasure of Securities Times, 25 high-quality, undervalued, lagging stocks have been selected based on the following criteria: since 2025, their gains are less than 30% (much lower than the 53.17% gain of the tech leader index); their current P/E ratios are below their three-year average; and, based on consensus forecasts, their 2025 and 2026 net profit growth rates are expected to remain above 20%.

These 25 stocks are mainly in semiconductors, optics and optoelectronics, software development, and other sectors. Since 2025, their average increase has been only 6.02%. Stocks like Hengtian Technology, Taiji Shares, and Goodix Technology have declined over 10%, with Hengtian’s latest P/E less than half of its three-year average.

In terms of growth prospects, among stocks with disclosed earnings, Sitwe-W and Allwinner Technology both expect net profit growth over 50% in 2025.

According to consensus forecasts, Quanzhi Technology, Hengtian Technology, Silan Microelectronics, and TCL Technology are all expected to see net profit increases over 65% in 2026, indicating high certainty of strong performance growth.

Disclaimer: Data Treasure’s information does not constitute investment advice. The stock market involves risks; invest cautiously.

Proofread: Lv Jiubiao