Technology stocks in Hong Kong are expected to resume share buybacks and see price stabilization following the release of financial results in March.
On February 20th, the fourth day of the Lunar New Year and the first trading day of the Year of the Horse for Hong Kong stocks, the Hang Seng Tech Index fell over 2.5% at one point to 5,222 points, marking a new low for the adjustment over the past five months. Some investors exclaimed, have the major constituent stocks of the Hang Seng Tech Index also turned into the "old guard"?
Alibaba Group Holding Ltd (09988.HK) saw its shares drop over 4% at one point, Baidu, Inc. (09888.HK) fell over 6%, and Tencent Holdings Limited (00700.HK) declined over 2%. In stark contrast, some newly listed stocks related to artificial intelligence and semiconductors, including Zhipu AI (02513.HK), MINIMAX (00100.HK), and Loongson Technology (06809.HK), continued their strong rallies and hit new highs. By the midday close, the Hang Seng Tech Index was down 2.28% at 5,245 points, with a turnover of HKD 22.5 billion. The Hang Seng Index fell 0.61% to close at 26,544 points, with a turnover of HKD 91.7 billion.
Industry analysis suggests that fierce competition in businesses like food delivery and digital red envelopes around the Spring Festival, combined with investor concerns over the return on investment in artificial intelligence, indicates that Hong Kong's technology stocks are likely to remain weak in the near term. It is estimated that only after companies like Tencent announce their results in March will tech stocks restart buyback programs, leading to a gradual stabilization of share prices.
A strategist from Everbright Securities International analyzed that technology stocks continue to weigh down the Hong Kong market. Investors are concerned about the business development of companies like Alibaba and Baidu, leading to significant declines in related stocks. Currently, the tech sector as a whole is not the primary focus for capital inflows. Coupled with a lack of support from southbound capital, it is expected that the Hong Kong market may maintain its weak trend in the short term, with near-term support for the Hang Seng Index likely situated between 26,000 and 26,200 points.
The Investment Director at Red Ant Capital, Li Zeming, believes that investor skepticism regarding the effectiveness of AI infrastructure construction is growing. Compared to the same period last year, the costs for AI infrastructure have risen significantly, but profits and revenues have not increased proportionately during the commercialization process. Prices for infrastructure components such as chips, storage, power generation equipment, and energy storage continue to soar. Meanwhile, competition in downstream AI applications is intensifying. The leading advantages and economic moats of some companies are not pronounced, making them susceptible to being replaced by competitors. Investors may need to develop new valuation models to address these issues. Furthermore, the rapid development of AI applications is showing a trend of replacing traditional software and conventional Software-as-a-Service (SaaS).
Li Zeming stated that for some leading tech stocks, the market holds dual concerns: firstly, worry over excessive investment in upstream AI segments yielding inadequate returns, and secondly, apprehension that core businesses like gaming could be disrupted by AI, thereby trapping their valuations. Businesses such as food delivery also face intense competition. In the short term, technology stocks still face downward pressure. However, as share prices gradually reflect these negative factors, a bottom may slowly form. Catalysts for a potential rebound could include favorable policies or interest rate cuts by the U.S. Federal Reserve. For individual stocks, it is anticipated that companies will restart share buybacks after announcing their results, providing some support to their stock prices.
Liu Gang, an analyst at China International Capital Corporation (CICC), mentioned that overseas short-term disturbances have relatively eased. The U.S. CPI data for January provided some positive news, helping to alleviate pressure from the Federal Reserve's hawkish stance. The yield on the 10-year U.S. Treasury note has fallen to 4.05%, down 25 basis points from the peak of 4.3% at the end of January. Although interest rate cuts still seem "distant," the decline in long-term rates has a similar practical effect on interest-rate-sensitive demand and the denominator side for Hong Kong stocks as an actual rate cut, since the latter also works by guiding long-term rates lower.