The dynamics of the Hong Kong stock market have been heavily influenced by the surging interest in technology stocks, driven largely by advancements in artificial intelligence (AI). On February 17, 2024, the Hang Seng Index almost touched the psychological benchmark of 23,000 points, with a slight morning gain of 0.18%, settling at 22,661.9 pointsNotably, shares of Tencent Holdings, a titan in the tech sector, momentarily crossed the 500 HKD mark, contributing significantly to the performance of the Hang Seng Technology Index, which surpassed levels last reached in October 2024.

The rebound witnessed in Hong Kong's market around the Lunar New Year has been more pronounced than that in mainland China's A-sharesAnalysts attribute this to the advent of DeepSeek, a new AI model that has sparked robust market enthusiasm for technology stocks in Hong KongLooking ahead to March and beyond, there is speculation that the A-share market could catch up, with investment increasingly spreading from high-flying technology stocks to a broader array of sectors marked by the "AI+" label.

In this environment, the rally has prominently featured Tencent Holdings, which is, by market capitalization, the largest company in Hong KongOn the same day, as Tencent shares surged, the Hang Seng Technology Index reached 5,656 pointsThe exciting growth potential of AI has drawn attention and investment to various sectors, from social networking and e-commerce to cloud applications, electric vehicles, and internet healthcareThese companies have quickly declared their intent to integrate AI technologies, drastically reshaping their market valuations in response to changing investor sentiment.

According to Pan Jun, an investment manager at Nai Zhi Fund, AI models like DeepSeek are remarkable for their low training costs, high performance, and open-source characteristicsThis has created a fertile ground for the rejuvenation of Hong Kong technology stocks, which, following a period of significant corrections in 2024, now appear to be benefiting from an upward revaluation driven by growing international investor interest

Advertisements

As these tech stalwarts become focal points for foreign capital investing in Chinese assets, the implications are substantial.

Analyst Fan Jituo from Xinda Securities points out that differences in sector performance and investor demographics have led to a greater responsiveness of the Hong Kong market to institutional expectations in the short termFactors such as seasonal capital flows before the 2025 Chinese New Year and the introduction of DeepSeek are significant catalysts for the current market upswingOver recent years, a pattern has emerged where Hong Kong stocks have consistently outperformed their mainland counterparts at pivotal points in the quarterly cycleFor instance, in March 2022, while the Hang Seng Index began to recover, the Shanghai Composite Index continued its decline until late April, showcasing the diverging trajectories between these two markets.

Chief Economist Hu Yu from Xinding Fund affirmed that the capital inflow from global investors and the anticipated Federal Reserve interest rate cuts in 2024 have propelled Hong Kong’s market recoveryThe A-share market, largely driven by domestic funds, is expected to experience a lag compared to its Hong Kong counterpartHowever, as both markets evolve, they could mutually reinforce each otherThe influence of Chinese monetary policy may also be more pronounced in Hong Kong stocks, especially with the continued influx of capital from mainland investors and the growing appetite of global investors for Chinese assets.

As the market continues to develop, there is an expectation that A-shares might soon catch upThe seasonal optimism often seen among retail investors tends to lag, leading to a situation where the Hang Seng starts to rally before the Shanghai CompositeAccording to Fan Jituo, key phases of the market could extend until mid-April, with a focus on the return of resident funds and improving economic data, as well as the balanced performance of quarterly reports across sectors.

Pan Jun also emphasized that the manufacturing sector is on the cusp of significant change due to AI integration

Advertisements

DeepSeek's applications within the manufacturing landscape present numerous opportunities across various operational stages, from quality control and process optimization to supply chain management and R&D collaborationThe interplay between AI technologies and these domains is poised to enhance efficiency and productivity significantly, creating a ripple effect that could expand investment into various segments related to AI+ manufacturing—electric vehicles, robotics, edge AI applications, data centers, and computational equipment.

Li Lifeng, a strategic analyst from Huaxi Securities, predicts that as computational costs decline, the landscape for AI applications will accelerate, especially by 2025. He notes that this cycle of AI investment demonstrates distinctive characteristics compared to previous years, such as a reorientation from overseas technology influences to local AI industry chainsThe investment focus is shifting from upstream sectors like optical modules and chips to middle and downstream applications, with emerging sectors like AI in healthcare, consumer experiences, gaming, and humanoid robotics gaining tractionIf 2023 marked the dawn of generative AI, 2025 could be seen as the year of explosive application growth across the domestic AI landscape, revealing its vast potential.

Advertisements