In recent times, the spotlight has been firmly fixed on the Hong Kong stock market, particularly its technology sectorThe surge in performance can be largely attributed to a renewed global understanding of China's technological innovation capabilities alongside a reevaluation of the value of its tech assets, sparked by the rise of DeepSeek, a prominent artificial intelligence initiativeAnalysts assert that China's deep technological reserves, robust human capital, and solid government support cultivate fertile ground for the emergence of technology giants akin to the "Seven Sisters" of the United States, comprising influential companies like Apple and Microsoft.

The foreign investment community has become increasingly optimistic about Chinese assets, particularly those in the tech sectorData from Wind reveals that, as of February 18, the Hang Seng Tech Index rose by an impressive 19.38% over just 12 trading days in February, consequently pushing the Hang Seng Index up by 13.61% during the same periodThis strong showing in Hong Kong, especially regarding tech shares, has garnered significant attention from global investors, marking a pivotal moment for the Hong Kong stock market.

Major foreign investment firms are adjusting their stance towards Chinese assets, including those in Hong KongIn a recent report, J.PMorgan expressed a bullish outlook on the performance of Chinese tech stocks, highlighting that following a noteworthy rebound, there remains a substantial valuation discount to be addressedGoldman Sachs also chimed in, forecasting that the widespread implementation of artificial intelligence could boost earnings per share for Chinese companies by an average of 2.5% annually over the next decade, subsequently raising its 12-month target for the CSI 300 Index from 4600 to 4700.

Lee Zhiying, the head of Greater China equities at UBS Wealth Management, underscored that the technology industry in China stands to be one of the most significant beneficiaries of the DeepSeek trend

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Improved fundamentals, attractive valuations, generous shareholder returns, and favorable medium to long-term factors related to AI have prompted a favorable outlook towards the Chinese internet sectorNotably, leading platforms within this domain are well-positioned to benefit from the rapid growth of AI applications and cloud services, with an average forward P/E ratio of just 12 times.

Nomura Holdings also noted that DeepSeek has ignited renewed interest among investors in the technological prowess of Asian tech firms, which are often found to trade at a relative discount compared to their American counterpartsThis has bolstered investor confidence in emerging markets in Asia and has led to a consistent increase in the weighting of Chinese tech stocks within Asian investment portfolios.

Recent disclosures have revealed that Alibaba saw significant increases in holdings from numerous internationally recognized investment institutions during the fourth quarter of 2024, including Morgan Stanley and the Norwegian Sovereign FundAnalysts interpret this trend as a crucial signal of a shift in international sentiment towards Chinese assets.

As we delve deeper into this current wave of growth within the Hong Kong stock market, particularly the tech stocks, it’s crucial to understand the motivations that have driven such impressive upward trendsMany industry insiders suggest that the revaluation sentiment fostered by DeepSeek, coupled with its influence across the overall Chinese asset landscape and the distinct structural characteristics of the Hong Kong market, are key contributors to this bullish phase.

According to research from China International Capital Corporation (CICC), the recent spike can largely be attributed to investor enthusiasm around technology, particularly in the realms of artificial intelligenceUnlike prior rebounds, this latest uptrend is less spread out and more focused on a narrower range of tech sectorsWhile 547 Hong Kong stocks were examined, only 20% of them outperformed the index during this rally, primarily concentrating in tech consumption and AI healthcare

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The 15 stocks that outpaced the index during this time saw an impressive rise of 24%, contributing significantly to the surge in the Hang Seng Index, while the remaining 68 stocks experienced a modest increase of just 5.8%. This stark divergence underscores the pronounced sectoral polarization in recent performances.

The dynamics of investor behavior and market structure in Hong Kong offer insight into how such select stock upticks can drive broader index levelsThe relatively smaller scale of the Hong Kong market, combined with a concentration of leading firms, amplifies the impact of significant stock movements more than in the A-share marketAdditionally, the Hang Seng Index is capped at an 8% weight for individual stocks, allowing smaller companies’ rallies to contribute more substantially to the overall indexThus, the ongoing rebound appears primarily structured.

Shenwan Hongyuan Securities pointed out that Hong Kong stocks typically exhibit greater elasticity during phases of enhanced market risk appetiteActivity within the Hong Kong market has surged since the onset of 2024, transitioning from a heavy weighting in dividend stocks to a notable focus on technology and manufacturingHistorically, names like Alibaba and Tencent were predominantly categorized as "consumer stocks" but recent trends are prompting a reassessment of their classification, particularly with the rapid advancements in AI marked by initiatives like DeepSeekThis shift portends a potential evolution in their valuation frameworks.

As the investment landscape tumultuously adapts, the flow of capital into the Hong Kong market is also reflecting these changesThe allocation of actively-managed public equity funds into stocks eligible for Southbound trading has surged to its highest levels in historyBy December 31, 2024, the proportion of equity fund allocations to Hong Kong stocks reached 14.5%, demonstrating a clear pivot towards hard technology while receding from pharmaceuticals

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Both actively managed and passive funds are revealing a window of upward momentum in the face of the market's evolving fundamentals and industry trends.

In comparison, analysts ponder the question of when China will cultivate its own tech "Seven Sisters", echoing the monumental rise of American tech giants which command gargantuan market valuations and influence the global technological narrativeThis anticipation gains traction alongside the analogous emergence of China's very own technology behemoths.

According to Haitong Research, the American "Seven Sisters" have significantly catalyzed recent bullish trends in U.S. markets, stemming from ongoing technological innovations and strategic mergers and acquisitionsBy February 15, combined valuations for these seven companies surpassed an astounding $17 trillion, representing a third of the S&P 500’s market cap, and exceeding the total market capitalization of Japan, Germany, the UK, and India.

This unique situation suggests that China is well-equipped with the foundational elements necessary to forge its own technology titans—its robust technological accumulation, abundant human resources, and supportive policy framework create conducive conditions for tech-centric investmentWithin the Chinese market, sectors such as AI applications, semiconductor manufacturing, and advanced equipment are poised to produce their own "Seven Sisters".

Chief economist Dong Zhongyun of AVIC Securities offers a historical lens on the evolution of tech momentum in Chinese markets with prior cycles of mobile internet and new energy vehicles, denoting two distinct phases: the initial international thematic investment stage followed by a domestic penetration cycle characterized by increasing market presenceThe first phase often involved nascent technologies with uncertain commercial viability, while the latter showcased the maturity of products and rapid increase of domestic industry playersHe asserts that DeepSeek's achievements signal a transition for China's homegrown models from catching up to innovating, laying the groundwork for explosive growth in associated applications and performance enhancements, thus ushering in an exciting investment landscape poised for the AI sector.

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