Southbound funds sold off significantly, but the Hang Seng Tech Index still rose. How do fund companies view this?

Cailian Press, March 7th (Reporter Zhou Xiaoya) — After reaching a new high in net outflows of southbound funds, the Hong Kong stock market experienced a strong rebound.

On March 6th, the Hong Kong market saw its first overall rally this month. By the close, the Hang Seng Index rose by 1.72%. The Hang Seng Tech Index, previously called a “drag” on the overall market, opened higher and continued to rise, closing up 3.15%, with a intraday high increase of 3.77%.

The day before this impressive turnaround, southbound funds recorded a new single-day net outflow high.

On March 6th, despite continued selling by southbound funds amid a generally bullish tone, the net outflow significantly narrowed from a peak of HKD 27.735 billion the previous day to HKD 2.188 billion.

Why did the market rebound? How long will the rebound last? These investor concerns have been addressed by responses from multiple fund companies.

Hang Seng Tech Index rebounds strongly

Why did the Hong Kong stock market rebound quickly, even with the Hang Seng Tech Index showing an even stronger bounce?

“On March 6th, the rise in Hong Kong stocks was essentially a high-quality corrective rebound, not just a simple technical bounce. It was the result of three forces: easing external disturbances, strengthened policy expectations, and a return to industry fundamentals,” explained Lei Jun, General Manager of Quantitative and Index Investment at Great Wall Fund. First, as geopolitical risks abroad marginally eased, market sentiment recovered, leading to a notable rebound in Hong Kong stocks.

Second, policy expectations continued to support the market. Recent government statements on high-quality development, technological innovation, and expanding domestic demand have provided a clear policy framework that supports valuation recovery, especially for tech growth assets.

During the National Two Sessions, the market paid close attention to policies aimed at stabilizing growth, boosting consumption, and supporting technological innovation. Official reports set a GDP growth target of 4.5%–5% for 2026, emphasizing expanding consumption, advancing technological innovation, and cultivating future industries. This helps improve sentiment around internet platforms, tech hardware, and new economy assets in Hong Kong stocks.

Finally, Lei Jun emphasized that the faster rise of the Hang Seng Tech Index is because it inherently represents the most resilient core assets in Hong Kong stocks. On one hand, it experienced deeper adjustments earlier, with more significant valuation compression; on the other hand, it better reflects market expectations for future growth, industrial upgrades, and risk appetite. Once the market begins to recover, the Hang Seng Tech Index naturally tends to have a steeper rebound trajectory than the main Hang Seng Index.

Liu Jun, Deputy General Manager and Director of Index Investment at Huatai-PineBridge, also agrees that the rebound on March 6th can be summarized as a result of sentiment recovery, marginal liquidity improvement, and oversold bounce resonance.

ETF continues to attract funds

It is worth noting that although southbound funds have continued to flow out over the past two days, even reaching a new single-day net outflow high, funds still keep flowing into Hong Kong stock theme ETFs. According to Choice data, on March 5th, 13 ETFs linked to the Hang Seng Tech Index attracted HKD 1.437 billion.

“The more they fall, the more they buy” has become the trend for Hang Seng Tech ETFs. Choice data shows that by March 5th, the Hang Seng Tech ETF had a net subscription of 61.789 billion units this year, ranking first in the market, with a total inflow of HKD 44.518 billion. Since February, the pace of fund deployment has accelerated significantly, with net inflows of HKD 32.39 billion since February alone, accounting for over 70% of the year’s total net inflow for the ETF.

Behind this contrarian fund allocation, Liu Jun analyzed that the current Hang Seng Tech Index’s forward P/E ratio of 20x is in the 10th percentile of the past five years, highlighting its valuation discount after rapid adjustment.

Dacheng Fund also stated that from a fund perspective, the current sector valuation is at a relatively low level historically. Coupled with improved earnings expectations and policy catalysts, this has attracted funds to re-enter and support the overall strength of the Hong Kong tech sector.

Additionally, ETFs linked to the Hang Seng Internet Technology Index and the Hong Kong Stock Connect Internet Index have also seen significant net subscriptions this year, with 12.532 billion and 12.4 billion units respectively.

Looking at individual products, Huatai-PineBridge’s Hang Seng Tech ETF has seen the largest net inflow this year, with HKD 14.043 billion as of March 5th. The fund’s total assets approached HKD 80 billion, reaching HKD 48.729 billion.

Is this a one-day rally or the start of a reversal?

Before the market closed higher on this day, the Hang Seng Tech Index had experienced a five-month correction, with a decline of over 26%. With policy support acting as a strong catalyst, how long can this rebound last? Is it just a “one-day rally”? These questions are now the focus of investors.

“This rebound is not a one-day wonder; its sustainability should be viewed more positively,” Lei Jun clearly stated.

He analyzed that, besides short-term sentiment recovery, the rebound is also supported by clearer mid-term industry logic and policy support. The PE ratio of the Hang Seng Tech Index is about 20x, roughly in the 20th percentile of the past year. If investors believe in the “upward trend in fundamentals,” now is a good time to pay close attention.

He emphasized that the most important theme is artificial intelligence, which is no longer just a thematic investment but one of the most certain industry trends in the coming years. The market’s revaluation of tech assets is driven by AI moving from model breakthroughs and computing power investments to cloud, terminals, software, applications, and commercialization, leading the entire tech industry chain into a new phase of capital expenditure and earnings re-estimation.

“Therefore, the Hang Seng Tech Index is not just about short-term rebounds but about further clarification of its medium-term allocation value,” he said. More and more funds now see the Hang Seng Tech Index as the most representative way to allocate Chinese tech assets in Hong Kong stocks. Especially under the ongoing policy emphasis on innovation, high-end manufacturing, digital economy, and AI, the Hang Seng Tech Index embodies one of the core main lines of the era.

Liu Jun also believes that the sustainability of the rebound needs to be viewed dialectically. On the positive side, he notes that medium- and long-term institutional recognition of the valuation at low levels for Hong Kong tech stocks is increasing; at the same time, the operating environment for leading tech companies is stabilizing, profitability continues to improve, and earnings reports are about to be released intensively in March, which could dispel negative earnings expectations.

However, he also warns of two major risks: first, the uncertain geopolitical situation could influence oil prices and global inflation expectations, affecting the Federal Reserve’s monetary policy path and external liquidity conditions for Hong Kong stocks; second, the progress of AI commercialization may still be a medium- to long-term factor influencing the Hang Seng Tech Index’s performance, directly impacting whether the index can achieve valuation and earnings growth. Continuous observation is needed.

Lei Jun also agrees that geopolitical risks abroad are a market risk factor. Additionally, if the domestic economic recovery remains weak, it could slow the valuation recovery of tech assets. As an offshore market, fluctuations in capital flows and external investor sentiment may still cause phase adjustments in Hong Kong stocks.

“In short, the direction is positive, but the pace may still fluctuate,” he said.

Regarding levels, he emphasized that the Hang Seng Tech Index is still in a bottoming repair phase rather than a high-level chase. From a valuation perspective, as of March 6th, the MA5 trading volume percentile of the Hang Seng Tech Index was only 35%, indicating low trading congestion. Historical data shows that at this level and within ±5 percentage points, the odds of buying and success rates are relatively high.

“With valuations at historically low levels, policy environment improving marginally, and funds continuing to flow in without breaking the long-term logic, the Hang Seng Tech sector may already have high allocation value, with potential for oscillating recovery,” Liu Jun said. For long-term investors, the current stage may be considered a left-side entry zone. However, he also advises maintaining rationality and being cautious of external uncertainties and short-term market sentiment swings.

Dacheng Fund also stated that policy tone, earnings expectations, and capital inflows are gradually highlighting the valuation and allocation value of the Hang Seng Tech Index.