The Hang Seng Tech Index has fallen into correction territory, down over 12% after reaching a high on March 18, partly due to profit-taking and trade war concerns. Strong interest from institutional investors followed stimulus measures from Beijing. Experts observe that while there is no immediate negative news, the market remains volatile, with optimistic views on the potential for growth in Chinese technology amid government support.

The Hang Seng Tech Index, which reflects performance of major mainland Chinese tech companies listed in Hong Kong, has entered correction territory, declining over 12% since reaching a peak on March 18. On Monday alone, the index fell by more than 3%, primarily due to profit-taking by investors amid ongoing uncertainties related to trade tariffs and U.S. restrictions on technology access for Beijing.

Following the introduction of stronger stimulus measures by Beijing last September, Chinese and international institutional investors had recently returned to Chinese stocks, causing the Hang Seng Tech Index to hit a three-year high earlier this month. The release of AI startup DeepSeek’s R1 model in January further propelled Chinese tech stocks, as it claimed to outperform U.S. competitors at reduced costs.

Mainland Chinese investors have shown a strong interest in Hong Kong stocks, particularly in Alibaba and Tencent, leading to record-high net purchases. However, Dan Niles from Niles Investment Management cautioned that past false rallies could repeat if the U.S. imposes more severe tariffs or if China restricts technological advancements.

James Liu, CEO of Clearnomics, indicated that the volatility in Chinese markets remains higher than in developed markets, suggesting that the escalating trade war would likely exacerbate this turbulence. Liu emphasized that for many, investing in Chinese tech stocks can serve as a diversification strategy away from an overabundance of investments in U.S. tech.

Aletheia Capital’s China strategist, Vincent Chan, remarked that there was no specific negative news affecting Chinese tech stocks; thus, the observed correction is attributable to profit-taking and a temperate recovery in China. Senior equity advisor at UBP, Vey-Sern Ling, noted that the market pullback is a natural response to the earlier exuberance but maintains that strong sentiment persists for China’s technology sector as innovation thrives with government support.

In summary, the Hang Seng Tech Index has experienced a notable correction following its recent high, primarily driven by profit-taking amid prevailing trade uncertainties. Despite the downturn, experts remain optimistic about the long-term potential of Chinese tech stocks, highlighting the ongoing support from the government and the sector’s favorable valuations relative to global competitors. Investors are advised to consider diversification into Chinese tech as they navigate market volatility.

Original Source: www.cnbc.com

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