Dialogue with Haifang Fund: The valuation tolerance of the Hong Kong stock market is not lower than that of external markets | Exclusive interview by 36Kr
Author | Wang Hanyu
Editor | Zheng Huaizhou
After benefiting from the release of DeepSeek at the beginning of the year, which led the global market and became the leader in the revaluation of Chinese assets amidst the praise from foreign institutional investors, the Hang Seng Tech Index has been in a correction for more than a month, falling nearly 18% from March 10th to April 15th.
Since the Spring Festival this year, the U.S. stock market has significantly adjusted. The Nasdaq Composite Index retreated more than 11% from February 5th to March 10th, and the Russell 3000 Index retreated nearly 8%. During the same period, the Hong Kong stock market stood out, with the Hang Seng Index rising more than 14% and the Hang Seng Tech Index rising more than 18%.
In this round of market driven by AI technological breakthroughs, the market generally believes that the emergence of DeepSeek has broken the core barrier of the U.S. AI technology monopoly. And as the competition develops to the application stage, the advantages of Chinese companies will become prominent.
However, looking at the longer time cycle, even at the high point of the Hang Seng Tech Index this year, its valuation level is still at a low level. Under the "DeepSeek market", the overall price - earnings ratio is mostly between 20 - 25 times. For several technology leading stocks, as of April 15th, the P/E ratio of Alibaba's Hong Kong - listed shares was 16.2 times, Tencent Holdings was 20.0 times, BYD was 27.2 times, Meituan was 23.2 times. Only Xiaomi Group at 43.7 times and SMIC at 94.7 times were significantly higher than the overall valuation.
During the same period, the P/E ratio of the Nasdaq Composite Index was about 37.0 times. Among the "Magnificent Seven" in the U.S. stock market, Amazon's P/E ratio was about 32.6 times, Apple was about 31.6 times, NVIDIA was about 37.1 times, and Tesla was about 114 times.
Therefore, is the current correction of the Hong Kong stock market the "end of the market" or a "short - term adjustment"? When will Chinese technology giants see a valuation switch? Can they reach a valuation level similar to that of U.S. stocks in the future? Around these issues, 36Kr recently had an exchange with Yao Wei, the fund manager of China Overseas Shanghai - Hong Kong - Shenzhen Fund. The following is a condensed version of the dialogue:
| 36Kr: Since the beginning of the year, the Hang Seng Tech Index in the Hong Kong stock market has been rising all the way and started to correct at the end of February. How do you think the technology stock market triggered by DeepSeek after the Spring Festival will develop?
Yao Wei: We think that technology stocks may show a volatile upward trend. The emergence of DeepSeek has led to a collective rise in technology stocks. Later, the trend may show some differentiation. Stocks that have risen a lot may fluctuate temporarily, while those that have risen less may have the demand for a catch - up rise. Further on, it may depend on whether the fundamentals can keep up or have the possibility of exceeding expectations. If the fundamentals continue to exceed expectations, the previously strong stocks may become strong again.
| 36Kr: Against the background of AI technological breakthroughs, how can we judge the fundamentals of technology companies?
Yao Wei: I think the core is still to look at the performance. For example, taking Internet companies as an example, the company's revenue usually comes from e - commerce business, cloud business, etc. If AI empowerment later really helps this company achieve growth in the number of e - commerce members, GMV, or cloud business revenue, and the corresponding performance improves, then its stock price should reflect this.
| 36Kr: How do you view the current allocation value of the Hang Seng Tech Index?
Yao Wei: The Hang Seng Tech Index has corrected a lot in the past month, but personally, I still remain optimistic because there are indeed many AI application - related targets in the Hang Seng Tech Index. Last year, there were more beneficiaries in the computing power field. I think AI applications will become more and more important in the future. Among the constituent stocks of the Hang Seng Tech Index, there are stocks in industries such as gaming, advertising, healthcare, automobiles, and home appliances, which almost cover all segments of AI applications. Especially if we look at the reaction of AI applications in the future, I think the Hang Seng Tech Index is a good allocation direction. Because AI applications can indeed empower the products of such companies, improve efficiency, and drive revenue growth, etc., and the overall development space of these companies will benefit.
| 36Kr: At this stage, what opportunities in the Hong Kong stock market are worth paying attention to if we want to make new investments?
Yao Wei: We divide the Hong Kong stock market into two major categories. One category is the opportunities brought by industrial transformation, such as technology stocks, and the other category is pro - cyclical stocks. Although technology stocks have risen a lot in the short term, if AI brings strong fundamental demand in the future, there is still room for them to rise. For the pro - cyclical sectors, it depends on the changes in the overall macro - environment. If the domestic economic fundamentals can improve, the pro - cyclical related sectors will also have good investment opportunities.
| 36Kr: Under the view of a "technology bull market", when do you think the valuation switch of leading technology companies may occur? How long will it last? Can their future valuations reach the 37 - times level of the Nasdaq or the level of their U.S. counterparts?
Yao Wei: In the past few years, the valuations of most Internet companies in the Hong Kong stock market have indeed been suppressed, and policy risk is a core factor. For example, game companies were once restricted by the freeze on game license approvals. As the issuance of game licenses has gradually returned to normal, the policy environment for such companies has improved, and the market's attitude towards their policy risks has also changed. The revenue growth rate of some companies has shown an inflection point last year. Under this condition, people's expectations for valuations will also become higher.
Currently, we think that as the Hang Seng Tech Index rises, its internal structure will also rotate. Stocks at high levels will correct, and those at low levels may have the opportunity for a catch - up rise. In the short term, we can pay attention to the annual reports recently released. If the annual reports exceed expectations, the demand for a catch - up rise will be more urgent. As for the time and space for the catch - up rise, it varies from stock to stock and still mainly depends on the performance growth trend of individual stocks. If the performance can maintain high - speed growth, the valuation tolerance of the Hong Kong stock market is not lower than that of external markets.
| 36Kr: Besides annual reports and quarterly reports, from what other aspects can we grasp the performance of individual stocks?
Yao Wei: We can pay attention to the more high - frequency data released by some experts and institutions, such as the changes in DAU and MAU of e - commerce companies and cloud computing companies, or the changes in the number of members and revenue of game companies after the experience is upgraded with the help of AI technology. These may all be catalysts for valuation changes.
| 36Kr: Besides policy turning and performance improvement, what other conditions can be regarded as positive signals for the Hang Seng Tech stocks to see a valuation switch?
Yao Wei: AI applications are also a relatively important factor. Because AI technology has indeed improved the application or experience of some products of Internet companies, which will ultimately be reflected in the performance. Although it will take a process, AI applications can indeed promote the business.
In addition, in terms of funds, southbound funds have been snapping up stocks. From January to March this year, the net purchase of southbound funds was more than HK$430 billion, while the total for the whole of last year was only more than HK$800 billion. Why do southbound funds buy Hong Kong stocks? This highlights the scarcity of Hong Kong - listed targets because there are indeed no such Internet companies in the A - share market. And they also have an advantage in terms of valuation. The A + H shares of many industries are significantly discounted in the Hong Kong stock market. So the increase of southbound funds in Hong Kong stocks also helps a lot in value revaluation.
| 36Kr: Southbound funds have increased their positions in Hong Kong stocks, and foreign capital has also flowed back, but mainly short - term flexible funds, while long - term funds are still on the sidelines. Under what conditions will long - term foreign capital start to increase their positions in Hong Kong stocks?
Yao Wei: We think that long - term foreign capital attaches great importance to the macro - fundamentals. Foreign capital will only consider re - allocating when it really sees a trend improvement in the macro - fundamentals. In addition, geopolitics is also a factor for foreign capital to observe. Only when geopolitics stabilizes will foreign capital increase its return.
In terms of capital flow, the foreign capital flowing into the Hong Kong stock market this year is mainly hedge funds. Maybe it's because there were more pro - cyclical targets before, so the core still depends on the overall economic situation. Because the macro - economy will affect corporate profits on the one hand and the exchange rate on the other hand. If the economy is good, the RMB exchange rate still has the opportunity to appreciate. So I think whether the macro - economy can really improve is the core factor.
| 36Kr: Previously, the stocks related to DeepSeek have shown a differentiated trend. In the Hong Kong stock market, hard - technology and AI - related Internet companies have led the rise, while life - service Internet companies have lagged behind. Does this indicate that the market's confidence in different technology sectors is also differentiating?
Yao Wei: There will also be differentiation within the technology stocks. Different types of technology stocks have different factors driving their stock prices. Hard - technology and AI - related Internet companies have stronger technological attributes. Since this round of rise is triggered by AI, it is reasonable for them to rise strongly. While life - service Internet companies have stronger consumer attributes. The rise of these companies may depend more on the current consumption strength, so their performance is relatively weaker.
| 36Kr: In the process of screening targets, how can ordinary investors distinguish which companies will truly benefit from AI technological breakthroughs and which companies are more inclined to concept speculation?
Yao Wei: Whether a company can truly benefit from AI technology depends on whether AI has brought order demand to these companies, and at the same time, observe the proportion of this order demand to the current business revenue. If the proportion is relatively low, the possibility of concept speculation is greater.
| 36Kr: Looking forward to 2025, where are the investment focuses of technology stocks? What will be the main investment ideas?
Yao Wei: Looking forward to 2025, technology stocks will be an important investment direction. We think that AI demand is the main driving force for the whole investment. We will continue to pay attention to: 1. Targets related to AI computing power and large models, such as AI chips, computing power hardware service providers, and large - model providers; 2. Enterprises related to AI applications. On the hardware side of applications, we mainly focus on four directions: mobile phones, glasses, automobiles, and robots. On the software and service side, we focus on many fields such as education, healthcare, advertising and marketing, e - commerce, law, and gaming.
| 36Kr: When investing in technology stocks, what events or data releases should investors focus on in the rest of this year?
Yao Wei: We think that we can continue to pay attention to the progress related to AI, including the evolution of large models at home and abroad, the capital expenditure of large companies during the annual report season and the proportion of revenue from the AI end, the launch and iteration of AI hardware.
Regarding the geopolitical issues that the market is worried about, the U.S. "reciprocal tariffs" officially took effect on April 3rd (Beijing time). However, I think we still need to observe the subsequent impact and which industries will be directly affected, because this cannot be solved overnight, and there are also game - playing purposes behind the policy, so the impact is not particularly clear.
In addition, regarding the Federal Reserve, I think we should still pay attention to its degree of monetary easing and the pace of interest rate cuts. Currently, the market is not very optimistic about its interest rate cuts because the inflation data and employment data in the United States are mixed, so there are still big differences in the market (regarding interest rate cuts). In particular, the market is also worried that whether the tariff policy will exacerbate inflation in the United States. So I am more cautious about whether the Federal Reserve will cut interest rates once or twice this year.
However, the current interest rate level is still relatively high. If it is lowered later, it will still be helpful for the performance of the Hang Seng Tech Index, because the funds in the Hong Kong stock market are mostly global. If the interest rate goes down, funds will naturally choose assets with better returns.
*Disclaimer: The content of this article only represents the author's views. The market is risky, and investment should be made with caution. In any case, the information in this article or the opinions expressed do not constitute investment advice to anyone. Before making an investment decision, if necessary, investors must consult professionals and make decisions carefully. We have no intention to provide underwriting services or any services that require specific qualifications or licenses for the trading parties.
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