Hengtec Continues Adjusting: Reasons Revealed! When Will It Stabilize? May Be Highly Related to This Characteristic

Hang Seng Tech Index has been on a continuous decline since October 2025, with a total drop of over 23%. ETFs tracking the Hang Seng Tech Index have also experienced significant setbacks. Why has the Hang Seng Tech Index “kept falling”? When will it bottom out?

Since October 2025

Performance ranks at the bottom globally

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

However, the luxurious lineup of constituent stocks did not 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 declined 8.62%, with further declines exceeding 5% in November; February 2026 saw a drop of over 10%, and March continued to fall by more than 3%.

Compared globally, the Hang Seng Tech Index’s performance is nearly at the bottom among major indices, with the Hang Seng Index only down less than 5.2% during the same period. In stark contrast, the Shanghai Composite Index and Shenzhen Component Index rose by over 5% cumulatively; many investors jokingly say they are “hiding the bull market in HSTECH.”

The ongoing decline has also caused many investors who have positioned in Hang Seng Tech-related products to see their holdings’ returns shrink or even turn into 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%. GF Fund’s Hang Seng Tech ETF and the Hang Seng Tech Index ETF have both declined over 26%.

Hang Seng Tech Index

More declines than gains since launch

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

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

Earlier, before its official launch (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 three periods, the Hang Seng Tech Index significantly lagged behind the Shanghai Composite Index and the leading tech indices in A-shares. For example, from early February 2021 to March 2023, the Shanghai Composite Index fell less than 7%, even though A-share tech giants also corrected, they still outperformed the Hang Seng Tech Index by a large margin.

For investors holding related products, each rebound in the Hang Seng Tech Index often brings surprise, but the joy is short-lived as 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 declined; on March 10, it rose another 2.4%, but from March 11 to 13, it fell for three consecutive trading days.

On a monthly basis, from July 2020 (when the index was officially launched) to March 2026, over 69 months, the Hang Seng Tech Index experienced more declines than gains, with only 32 months of gains—more than 53% of months down. During the same period, the Shanghai Composite Index had less than 44% of months down, and the S&P 500 had only about 36% of months declining.

Three main reasons for the decline of Hang Seng Tech

Why has the Hang Seng Tech Index continued to fall? 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:

First, prior high gains led to profit-taking. From early 2025 to the third quarter, the index gained nearly 45%, ranking among the top globally, far ahead of the US major indices and the Nikkei 225. About two-thirds of the constituent stocks gained over 30%, and one-third gained over 100%.

Second, market leadership shifted, with a clear trend of “de-softening and going hard.” Since Q4 2025, the global market focus shifted from previously hot internet platforms, semiconductors, and new energy vehicle chains to sectors like commercial aerospace and precious metals.

Looking at the constituent stocks of HSTECH since October 2025, only three stocks rose: Haier Smart Home, Midea Group, and Hua Hong Semiconductor. Among these, Hua Hong Semiconductor had the largest increase, but only about 10%.

Among the stocks that declined, 20 fell more than 20%, and 9 fell over 30%. Notably, Kingdee International, Tencent Music-SW, Xiaomi Group-W, and Sunny Optical Technology all declined over 35%, heavily dragging down the index.

Sector-wise, the biggest declines were in consumer electronics, internet services, e-commerce, and passenger vehicles.

Third, concerns over profit growth. Based on disclosed 2025 net profits and consensus forecasts, the overall net profit of the index’s constituents in 2025 is expected to grow less than 10% year-over-year, with 2026 forecasted growth below 20%, much lower than the 52.07% growth in 2024. This indicates that institutional expectations for future profit recovery have been lowered.

On the surface, the decline of HSTECH is driven by market correction and changing fundamentals, but deeper analysis suggests it is highly related to the index’s structural characteristics.

According to Huatai Securities, HSTECH has relatively low “hard tech” content and is strongly consumer-oriented. The recent correction since Q4 2025 aligns with a slowdown in AI trading and a divergence of “de-softening and going hard.” Structurally, the intertwining of tech and consumer sectors creates two different logical lines. From a macro perspective, HSTECH is sensitive to geopolitical tensions and US-China trade relations, requiring stability or positive changes in these variables.

Zhirui 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 constituent stocks, which mainly include 30 representative high-tech internet stocks.

High-quality, undervalued tech giants with lagging performance emerge as investment targets

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

Comparing the Hang Seng Tech Index with the A-share Tech Top 100, Tech Leaders, and S&P 500 indices, it is evident that HSTECH has a strong correlation with the A-share tech leaders, showing significant linkage.

For example, during the continuous decline in February and March 2026, the tech leader index also weakened; in September 2025, both indices rose over 10% that month; in October and November, they entered correction phases simultaneously, indicating strong resonance between A/H-share tech sectors.

The constituent stocks of the tech leader index mainly cover semiconductors, software development, IT services, communication equipment, and consumer electronics—core tech sectors—differing clearly from HSTECH’s focus on internet and platform economy. This structural difference provides independent fundamental and valuation support for A-share tech leaders.

Currently, HSTECH’s P/E ratio is about 21x, well below its historical median (28.5x) and average (~32x). In contrast, the tech leader index’s P/E ratio is around 51x, higher than its three-year average (~41x).

Regarding when HSTECH will bottom out, Huatai Securities believes that the market’s AI expectations are nearing the end of their correction. The key to re-evaluating AI lies in industry catalysts: progress in large models and applications for AI software, and further capital expenditure on domestic AI hardware.

While Hong Kong stocks fluctuate and bottom out, the structural opportunities in A-shares’ tech sector are becoming clearer. Among the tech leader stocks, some undervalued, high-growth, lagging stocks are showing strong allocation value.

According to Securities Times Data Treasure, 25 high-quality, lagging, undervalued stocks have been identified based on the following criteria: since 2025, their gains are less than 30% (significantly below the 53.17% gain of the tech leader index); 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 software development, with an average increase of only 6.02% since 2025. Stocks like Hengtian Technology, Taiji Shares, and Goodix Technology have declined over 10%, with Hengtian’s P/E ratio less than half of its three-year average.

From a growth perspective, among stocks with disclosed earnings, Sitwe-W and Allwinner Technology expect over 50% YoY net profit growth in 2025.

Based on consensus forecasts, Quanzhi Technology, Hengtian Technology, Silan Microelectronics, and TCL Technology are all expected to see net profit growth over 65% in 2026, indicating strong earnings growth potential.

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

Editor: He Yu