The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in Hong Kong with high business exposure to technology themes, has staged a significant breakout above the 5,500 level in the latter half of July. This move snapped a period of underperformance relative to the broader Hang Seng Index. The resurgence of the tech index was due to several factors.
Firstly, market sentiment has been lifted by the government’s promises to tackle price wars and curb overcapacity in industries such as solar panels, electric vehicles and online food delivery. Notably, major online food delivery platforms owned by Alibaba, Meituan and JD.com were summoned by China’s State Administration for Market Regulation to engage in rational competition amid a period of aggressive pricing.
Secondly, the planned resumption of Nvidia’s H20 AI chips supply to China also boosted optimism over the country’s tech development efforts. The chips have been instrumental in the rise of Chinese AI companies like DeepSeek, enabling them to build AI models at a fraction of the cost incurred by US firms such as OpenAI. The removal of this hardware bottleneck is expected to boost AI ambitions for Chinese firms, including Alibaba and Tencent, both of which have previously placed large orders for the H20 chips.
Thirdly, a surge in mainland Chinese investors’ purchases of Hong Kong-listed technology stocks has provided a strong tailwind. These investors appear to be positioning tactically, capitalising on expected policy support and relatively attractive valuation discount to US tech peers. On Jul 22, southbound net inflows expanded by another HK$2.7 billion, taking this year’s total to HK$800 billion, a figure just shy of the 2024 record of HK$808 billion.
From a technical perspective, the Hang Seng Tech Index is poised for further legs in the current rally. The index had broken out of a wedge consolidation between 5,000 and 5,500 points with a projected target close to the 6,000 mark, a level that aligns with the resistance level formed in February to March 2025. The breakout occurred concurrently with an expansion of the Bollinger Bands, which suggests increased volatility ahead and often precedes price breakouts from trading ranges. Additionally, the Moving Average Convergence Divergence technical indicator is now displaying increasing momentum after remaining flat since April, which suggests a potential breakout following a period of consolidation.
In conclusion, the recent resurgence of the Hang Seng Tech Index is the result of a confluence of factors, including government policy support aimed at tackling ongoing price wars and curbing overcapacity, the planned resumption of Nvidia’s H20 AI chips and a surge in purchases by mainland Chinese investors. Bullish technical signals are likely to drive the rally higher, with the next target level at 6,000 points, a retest of the year-to-date highs.
The writer is research analyst at Phillip Securities Research
