On February 21, 2025, a gripping spectacle unfolded in the global financial markets during the trading session, captivating countless investors as the trajectories of the Hong Kong and A-share markets drew significant attention. The performance of the Hong Kong stock market today can only be described as stunning, showcasing remarkable resilience. A brief dip on the previous day did little to hinder its upward momentum. Today, all three major indices surged powerfully, once again setting new highs not seen in nearly three years.
After experiencing a 1.60% drop yesterday, the Hang Seng Index opened high today, with intraday gains reaching as much as 2.95%. The Chinese Enterprises Index, which fell by 1.66% the preceding day, opened today with a 2.45% increase and even touched a high of 3.05% during trading. Similarly, the Hang Seng Tech Index, which experienced a 3.04% drop yesterday, opened with a tremendous gain of 3.36% and peaked at an impressive 4.15% during the day.
Analyzing the underlying trends in industry development, the robust performance of these tech stocks can be attributed to groundbreaking advancements in AI technologies, particularly the industry transformation instigated by DeepSeek. This innovation has revolutionized cost reduction in AI computing power and model optimization, significantly reshaping global capital's perception of Chinese tech assets. Notably, the training costs of their R1 model are just one-tenth of the industry average, substantially enhancing the competitiveness of Chinese AI companies on the global stage. Moreover, Hong Kong tech stocks have been undervalued for an extended period. Specifically, the average price-to-earnings (P/E) ratio of constituents in the Hang Seng Tech Index remained around 20 times over the past year, a stark contrast to global counterparts. Now, driven by both technological advancements and capital influx, these stocks are finally undergoing a much-needed value correction. Notably, significant capital flow into the Hong Kong stock market, particularly in tech shares, marked a net inflow of 15 billion Hong Kong dollars, accounting for a staggering 70% of the total southbound capital.
This vibrant activity in the Hong Kong stock market has had a direct and pronounced effect on the A-share market. As the trades commenced, various factors led to brief fluctuations. Initially, the A50 futures index plummeted after starting with a promising 0.85% increase, falling into negative territory. However, as the gains in the Hong Kong market intensified, the A50 futures surged back, rallying to a 1.30% increase midway through trading. Likewise, after a dip and subsequent rebound, the three major indices of the A-share market transitioned from a loss to a gain, all influenced by significant upward shifts in the Hong Kong market. Despite these gains, it is worth mentioning that the stocks entering a correction phase numbered over 3000, largely due to previous excessive climbs in tech stocks.
In observing the sectors leading the A shares, notable performers included liquid-cooling servers, various power supply equipment, communication services, data centers, computing power leasing, and Alibaba's related concepts, alongside semiconductor technology and supercapacitors. These sectors, closely tied to technology and the digital economy, reflect sustained market attention and investment enthusiasm in technological fields. Conversely, sectors such as military equipment restructuring concepts, private hospitals, apparel and textiles, retail, and beverage manufacturing experienced mild corrections, with declines remaining relatively contained, around the 1% mark.
As the A-share market journeyed through early highs followed by dips, the atmosphere was tinged with a mix of uncertainty and anticipation. Margin trading came under the spotlight as investors tried to hedge risks while simultaneously seeking to capitalize on upward trends. Nonetheless, the exuberance of investors proved hard to stifle, with the ChiNext index enjoying gains exceeding 2% alongside trading volumes surging to an impressive 2 trillion. Although domestic investment continued its net outflow, resulting in more stocks falling than rising, the influx of fresh capital and enthusiastic investors generated a prompt recovery following brief setbacks, highlighting the market's robust intrinsic strength.
Today's fluctuations in the Hong Kong and A-share markets signify more than just ephemeral market sentiments or capital movements; they illustrate the profound impact of shifting global economic paradigms and the crucial role that technological advancements play in capital markets. For investors, this moment is a double-edged sword, presenting both opportunities and challenges. Many will need to stay vigilant on market trends, align with the dynamic progression of sectors, and navigate their investment strategies cautiously to forge a steady path through the turbulent tides of the financial landscape.