A 2 trillion yuan plunge! Major changes in Hong Kong stocks! What happened? Are the sentiments too pessimistic?

HSI Tech Breaks Out of a Bearish Pattern!

On February 26, Hong Kong tech stocks all declined, with the Hang Seng Tech Index dropping 2.87%. Well-known tech stocks like Baidu, Kuaishou, Alibaba, Ctrip, Tencent, and others collectively fell. Since reaching the year’s high on January 13, the market capitalization of the Hang Seng Tech Index components has evaporated by HKD 2.3 trillion (about RMB 2 trillion). The index’s trend has clearly shifted to a bearish pattern.

What exactly happened? Industry insiders in Hong Kong revealed that the hottest hedge trading strategy on Wall Street in early 2026—HALO trading (Heavy Assets, Low Obsolescence)—not only impacted the US stock market but also affected the Hong Kong market. Long-term institutional holdings may also be starting to loosen. A reporter from China Securities Journal also noted that January 13 marked the peak of US leveraged loan indicators.

“Two Trillion” Major Collapse

On February 26, only 2 of the Hang Seng Tech Index constituents rose, while 28 declined. Bilibili fell 4.6%, Baidu Group down 4.3%, Kuaishou down 4.14%, Alibaba down 3.6%, Ctrip down 3.24%, and Tencent Holdings down 2%. Previously, on February 2, the index broke below support. As of now, a significant bearish pattern has been established.

On January 13 this year, the Hang Seng Tech Index reached its highest point of the year, with the total market cap of its constituents closing at HKD 17.15 trillion. By today’s close, it had fallen to HKD 14.85 trillion, evaporating HKD 2.3 trillion in just over a month.

Insiders revealed that the ongoing sell-off of Hong Kong tech stocks is largely related to HALO trading. The core logic of this strategy is: amid the accelerating AI revolution, the market is shifting from a “scalable light-asset narrative” to “buildable, hard-to-replace physical capacity and networks.” Investors are seeking “high entry barriers and hard-to-automate physical assets” to hedge against AI-related uncertainties. Recently, some physical assets in the A-share market have indeed attracted capital.

This trading strategy has caused many related US stock sectors, such as software, to plunge wildly. Since the Hang Seng Tech Index’s major weights are internet platform companies, they have also been dragged down accordingly. Notably, the long positions in this strategy are held in utilities, industrial giants, energy materials, and core semiconductor material manufacturers.

According to China Securities Journal, investors in the Hong Kong market are quite pessimistic about the prospects of internet stocks under AI disruption. Some long-term institutional holdings seem to be loosening. In the past two trading days, southbound funds have continued to sell, with total sales exceeding HKD 11 billion. This indicates that long-term capital, such as the iShares Hang Seng Index ETF, has experienced multiple days of heavy selling by southbound funds, with yesterday’s net sales exceeding HKD 4.4 billion.

Is the Sentiment Too Pessimistic?

The continuous sell-off of Hong Kong stocks (especially tech stocks) contradicts many bullish views from major international banks at the end of last year and early this year. Clearly, in an ecosystem driven by “constructive logic, selling logic, and hype logic,” market participants have not fully anticipated or prepared for AI disruptions. This has resulted in a massive market shockwave.

So, is the current sentiment overly pessimistic? This question goes back to the core logic: will AI companies like Anthropic truly pose a significant threat to the software industry? Deutsche Bank analyst Brad Zelnick, in his latest report, stated: “After reviewing Anthropic’s corporate briefings, we are more convinced that AI model providers are unlikely to replace existing software companies but will position themselves and their agents as coordinators over existing software systems.”

UBS analyst Ambar Warrick even believes that concerns about AI create buying opportunities. Chinese tech giants currently have much lower capital expenditure than their US counterparts. It is expected that domestic large-scale cloud service providers will announce increased spending plans in upcoming earnings reports. Unlike the negative market reaction to increased capital spending in the US, Chinese investors tend to reward companies committed to growth through capital expenditure.

Additionally, China’s AI strength is rising, with startups like Zhipu, MiniMax, and DeepSeek recently releasing several leading AI models, boosting market confidence in China’s long-term AI prospects. By 2026, China is expected to make more significant progress in foundational models and innovative applications.

Regarding the gaming industry, UBS dismisses the idea that “AI will overthrow traditional game development.” Although Google’s Project Genie has raised concerns about increased competition, UBS believes that the deep user insights, operational capabilities, and IP reserves of leading companies are advantages that small developers cannot replicate. Top gaming companies are actually poised to benefit from AI trends.

More notably, UBS has increased Tencent Holdings’ weight by 3 percentage points and added 1 percentage point each to Bilibili, BOSS Zhipin, Meituan, NetEase, and TAL Education, while reducing holdings in Vipshop, New Oriental, Alibaba, and Xiaomi. UBS Securities also believes that as inflation expectations shift into corporate profit improvements, the Chinese stock market could rise another 20%.

Recently, a popular joke has circulated: for Hang Seng Tech to rise, the conditions are: US stocks must surge, A-shares must surge, Japan and Korea’s markets cannot fall, Bitcoin cannot fall, the Federal Reserve cannot turn hawkish, it must be in a rate-cut cycle, no wars can break out anywhere in the world, no companies in the tech sector can spend money on discounts or coupons, and no blockbuster AI products can appear. The author can only say: Hong Kong stock investors are really in a tough spot!