Hengtec Continues Adjusting: Reasons Revealed! When Will It Stabilize? 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 has the Hang Seng Tech Index “kept falling,” and when will it stop?

Since October 2025, the Hang Seng Tech Index

Performance ranks at the bottom globally

After reaching a temporary high in early October 2025, the Hang Seng Tech Index (or “HSTECH”) 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 impressive lineup of constituent stocks did not support a stable trend for the index. From early October 2025 to March 13, 2026, the index has fallen more than 23%, with only one month of gains. In October 2025, it dropped 8.62%, and in November, it continued to decline over 5%. February 2026 saw a further decline of over 10%, and March continued to fall by more than 3%.

Globally, compared to major indices, the Hang Seng Tech Index’s performance is nearly at the bottom. During the same period, the Hang Seng Index fell less than 5.2%. In contrast, the Shanghai Composite Index and Shenzhen Component Index rose over 5%, with many investors joking that they are “hiding in the bull market in the Hang Seng Tech.”

The ongoing 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 through the 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%.

Hang Seng Tech Index

More declines than gains since launch

Looking back at its 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.

Before its official launch (based on the 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%, and although A-share tech giants also declined, they outperformed the Hang Seng Tech Index by a large margin.

For investors holding related products, each rebound of the Hang Seng Tech Index is a surprise, but the joy is short-lived as it 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 statistics from July 2020 (when the index was officially launched) to March 2026 show that out of 69 months, the Hang Seng Tech Index rose in only 32 months, with more than 53% of months showing declines. During the same period, the Shanghai Composite Index had less than 44% of months with declines, and the S&P 500 had about 36%.

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, the index previously experienced high gains, leading 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 from “soft” to “hard” technology. Since Q4 2025, the global market focus has shifted from high-growth internet platforms, semiconductors, and new energy vehicle chains to sectors like commercial aerospace and precious metals.

Among the 30 constituent stocks since October 2025, only three rose: Haier Smart Home, Midea Group, and Hua Hong Semiconductor. Hua Hong Semiconductor had the largest increase, but only about 10%. Twenty stocks declined over 20%, and nine fell more than 30%. Notably, Kingdee International, Tencent Music-SW, Xiaomi Group-W, and Sunny Optical Technology all declined over 35%, heavily dragging down the index.

Industries with the largest declines include consumer electronics, internet services, e-commerce, and passenger vehicles.

Third, concerns over profit growth prospects. Based on disclosed 2025 net profits and median forecasts, the overall net profit of the index’s constituent stocks 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 profit recovery have been lowered.

While the decline of the Hang Seng Tech Index appears to be driven by market correction and changing fundamentals, deeper reasons relate to the structural characteristics of its constituent stocks.

According to Huatai Securities, the index has relatively low “hard tech” content and is heavily consumer-oriented. The recent correction aligns with a slowdown in AI trading and a divergence between “soft” and “hard” tech. Structurally, the mix of tech and consumer sectors creates two different logical paths. Macro-wise, the index is sensitive to geopolitical tensions and US-China trade relations, which need stabilization or positive developments.

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 Hang Seng Tech Index, which is composed of 30 representative internet and high-tech stocks.

High-quality, undervalued tech leaders with lagging performance emerge

Despite the ongoing correction in the Hang Seng Tech Index, the A-share tech sector shows clear differentiation: some high-valued sectors fluctuate at high levels, while high-quality, reasonably valued, high-growth, lagging stocks are gradually becoming attractive for allocation.

Comparing the Hang Seng Tech Index with the Shanghai Tech Innovation Index, A-share Tech 100 Index, and S&P 500 reveals a strong correlation, with notable co-movement.

For example, in February and March 2026, the Hang Seng Tech Index and the Tech Leaders Index both declined simultaneously. In September 2025, both rose over 10% in a month, and in October and November, they entered correction phases together, showing strong resonance between Hong Kong and US/A-share tech sectors.

The constituent stocks of the Tech Leaders Index mainly cover semiconductors, software development, IT services, communication equipment, and consumer electronics—distinct from the Hang Seng Tech Index’s focus on internet and platform economy. 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 21, well below its historical median (28.5) and average (around 32). The Tech Leaders Index’s P/E is about 51, higher than its three-year average (~41).

Regarding when the Hang Seng Tech Index will stop falling, Huatai Securities believes that the correction in AI expectations is nearing its end. The key to re-rating AI lies in industry catalysts, such as progress in large models and applications from major firms, and increased capital expenditure in domestic AI hardware.

While Hong Kong stocks are consolidating, the structural opportunities in A-shares are clearer. Among the tech leaders, some undervalued, high-growth, lagging stocks have shown strong allocation value.

According to Securities Times Data Treasure, 25 undervalued, high-quality stocks with lagging performance have been identified 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); 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 exceed 20%.

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

In terms of growth prospects, companies like Sitoway-W and Allwinner Technology have seen net profit increases over 50% in 2025.

Based on consensus forecasts, companies like Allwinner Technology, Hengtian Technology, Silan Microelectronics, and TCL Technology are 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 Yuzhen