Hong Kong tech stocks warming up, which should you buy among Hang Seng Tech ETF, Hang Seng Internet ETF, and Stock Connect Internet ETF?

Recently, the Hong Kong stock internet sector has experienced a recovery and rebound, with positive factors such as the performance of heavyweight stocks and AI revaluation increasing, and market sentiment continuing to improve.

Currently, among ETFs tracking Hong Kong internet giants, the largest are the Hang Seng Technology ETF, Hang Seng Internet ETF, and Hong Kong Stock Connect Internet ETF. What are the differences? Which one should you buy?

(1) Hang Seng Technology ETF: Balanced but not sharp enough

Launched earlier, it is one of the most representative flagship indices in the Hong Kong stock market and can be considered a thermometer of the Hong Kong tech market. Currently, the largest ETF tracking Hang Seng Technology is the Hang Seng Technology ETF (513180.SH).

From its structure, the Hang Seng Technology ETF has a relatively balanced industry distribution, including internet and new energy vehicles, with a diverse composition. When the sector as a whole rises, the index benefits; but when sectors diverge in performance, it reveals a lack of sharpness in the index.

(2) Hong Kong Stock Connect Internet ETF: High sharpness but overly reliant on heavyweight stocks

Currently, the Hong Kong Stock Connect Internet ETF is the largest in the market for Hong Kong tech ETFs, with a scale exceeding 70 billion. Its main advantage is high sharpness, with the top three holdings having concentrated weights.

However, this also means that when Xiaomi and Meituan pull back significantly, the ETF’s performance is most affected. The Hong Kong Stock Connect Internet ETF only covers stocks included in the Stock Connect program; companies like Baidu, JD.com, NetEase, and GDS are not yet included and thus are not part of this ETF.

(3) Hang Seng Internet ETF: Constituents include non-Stock Connect stocks

Since its inception, this ETF has been inherently “internet” in nature. There are only three ETFs tracking the Hang Seng Internet Technology Index, with the largest being the Hang Seng Internet ETF (513330.SH).

The main advantage of the Hang Seng Internet Index is comprehensive coverage, including AI stocks not in the Stock Connect: Baidu Group-SW, JD Group-SW, NetEase-S, and GDS-S.

These non-Stock Connect constituents are currently attractive in terms of value and AI development: JD.com, after a correction, has returned to August 2024 levels, which is overly pessimistic; it is now in a recovery phase. Baidu’s Kunlun chip is about to be listed, cloud revenue has grown significantly, and valuation potential is high. NetEase’s gaming business has support at the bottom. Moreover, Baidu and NetEase are seeking dual primary listings, and their inclusion in the Stock Connect is not far off, which could improve liquidity and market expectations.

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