THE Hang Seng Tech Index, which tracks the 30 largest technology companies listed in Hong Kong with high exposure to technology themes, has continued to weaken this year.
The selloff in Chinese technology shares pushed the key index to the brink of a bear market, with a 20 per cent decline from the October 2025 peak. This underperformance is largely due to several factors, including concerns over a tax on internet firms and outflows from China’s state-backed institutions.
Investor sentiment deteriorated amid fears that the authorities may impose higher value-added tax on internet firms following a tax increase on telecommunication companies. Also weighing on sentiment is Tencent’s decision to hand out cash through digital red packets to drive traffic towards its artificial intelligence app, Yuanbao, which mirrors similar promotional campaigns by peers. These developments have heightened concerns over an already intense price war among Chinese tech giants.
Record outflows from exchange-traded funds (ETFs) held by Central Huijin Investment, a sovereign wealth fund, further dampened investor sentiment. The withdrawals signal that Beijing is no longer simply propping up the market but may be actively reining in the rally.
The ETF outflows have coincided with regulators’ efforts to tighten rules on margin financing, signalling unease over rapid gains in sectors such as rockets and AI applications, where profitability is unclear.
From a technical perspective, investors should exercise caution as the pullback for the Hang Seng Tech Index is likely to deepen after recent breakdowns of key supports point to potential continued downside momentum in the near term. The tech gauge also faced resistance at the 100-day simple moving average in January, a key barometer for medium-term trends. This resistance was confluent with a 38.2 per cent to 50 per cent Fibonacci retracement area using the 6,715 swing high and 5,348 swing low. The subsequent breakdown below the 5,650 support level at the end of January, accompanied by a bearish crossover on the moving average convergence divergence technical indicator, reinforces the negative outlook.
In conclusion, the current drawdown for the Hang Seng Tech Index is likely to persist in the near term with a breakdown of key support levels amid outflows from China’s sovereign wealth fund and investor concerns of higher tax on internet firms. The index could continue to pull back towards the 5,100 level, representing a further 6 per cent downside from the current price at the time of writing.
The writer is senior research analyst at Phillip Securities Research
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