The Chinese and Hong Kong flags flutter as screens display the Hang Seng Index outside the Exchange Square complex, which houses the Hong Kong Stock Exchange, on January 21, 2021 in Hong Kong, China.
Zhang Wei | China News Service via Getty Images
Tech stocks listed in Hong Kong fell into correction territory Monday, as investors booked profits, while trade war uncertainty and U.S. moves to restrict Beijing’s access to high-end tech also weighed on sentiment.
The Hang Seng Tech index, which tracks the some of the largest mainland Chinese technology companies listed in Hong Kong, is down more than 12% since its March 18 high, having dropping over 3% Monday.
Chinese and international institutional investors began returning to Chinese stocks after Beijing unveiled stronger stimulus measures last September. The investor inflow pushed the Hang Seng Tech Index to a three-year high earlier this month.
Chinese tech stocks got a sharp boost since the release AI startup DeepSeek’s R1 model in January challenged the U.S.-led AI ecosystem, claiming superior performance at much lower costs than other established AI players.
Hong Kong stocks, particularly Alibaba and Tencent, saw net purchases from mainland Chinese investors hit a record high recently.
“There have been plenty of false rallies in China tech stocks over the past three years and this could prove to be the same as well,” said Dan Niles from Niles Investment management, adding that this is especially the case if tariffs from the US are more punitive than currently expected or if China once again “switches to hindering these companies.”
Chinese markets are still significantly more volatile than the U.S. and other developed markets, CEO of Clearnomics James Liu told CNBC, adding that factors such as a growing trade war will likely continue to add to the volatility.
“For most investors, investing in China tech stocks should be viewed as a way to diversify portfolios that have likely grown to be overly concentrated in U.S. tech,” Liu said.
“There is no specific bad news for China tech stocks, so the recent correction is largely due to profit taking and the relatively subdued China recovery,” said Vincent Chan, Aletheia Capital’s China strategist.
The pullback is “normal” after the strong rally this year, echoed Vey-Sern Ling, senior equity advisor at UBP, who believes investor sentiment continues to be positive for the country’s technology scene.
“Innovation is back, and the government is clearly supportive,” said Ling, who added that China tech stocks still have room to appreciate on the back of a strong earnings season and low valuations relative to global counterparts.
The MSCI China Index is currently trading at 12.58 times its projected 1-year earnings, compared to the S&P 500, which is trading at 20.21 times projected 1-year earnings, data from FactSet showed.
