"Review" Hang Seng Index rose 20% in the first half of 2025, while the Tech Index increased nearly 19%

The Hang Seng Index reversed its four-year decline last year, with a total increase of 17.7% for the year (the Tech Index rose over 18%). In the first half of this year, it rose by 20%, ranking among the top in major global index markets. At the beginning of this year, the mainland's artificial intelligence deep exploration model "DeepSeek" emerged, leading to a significant change in investors' narrative regarding the revaluation of Chinese assets, with AI-related technology and internet sectors gaining popularity. Southbound funds became one of the main drivers of the market, and the Hang Seng Index reached 24,874 points on March 19, marking a three-year high since February 2022.

However, U.S. President Trump announced "reciprocal tariffs" in early April, significantly exceeding market expectations, prompting China to retaliate, leading to severe fluctuations in global markets. On April 7, the Hang Seng Index plummeted by 3,021 points or over 13%, marking the largest single-day point drop in history, with a trading volume of HKD 620.8 billion hitting a record high. It later bottomed out and rebounded, with the mainland also introducing a series of supportive policies (national consumption subsidies and special local government bonds) to boost market confidence. In early May, China and the U.S. issued a joint statement to mutually reduce tariffs for 90 days, boosting market sentiment and fundamentals, leading to a continuous upward trend in Hong Kong stocks from May to June.

In summary for the first half of 2025, the Hang Seng Index closed at 24,072 points, up 4,012 points or 20%; the National Index closed higher by 1,388 points or 19%; the Tech Index closed at 5,302 points, up 834 points or 18.7%.

【DeepSeek Emerges, Hang Seng Index Rises 15% in First Quarter】

Hong Kong stocks declined from early to mid-January, as market concerns about the uncertainty triggered by President Trump's administration grew, and investors awaited specific amounts of economic stimulus policies from the mainland. The Hang Seng Index fell to a half-year low of 18,671 points on January 13 (down 1,388 points or 6.9% from the end of last year). By late January, the mainland's startup artificial intelligence (AI) company DeepSeek launched its R1 open-source model, which matched the performance of OpenAI's GPT-1, drawing market attention to the cost trends and industry changes of AI large models.

The DeepSeek craze led the market to anticipate that Chinese companies would lower AI costs and improve efficiency, with the mainland's internet industry set to welcome another wave of investment growth. On February 28, the trading volume of the Hang Seng Index rose to over HKD 406.2 billion, while the Hang Seng Index rose by 2,716 points or 13.4% in February, and the Tech Index rose by 844 points or 17.9%. The average daily trading amount for Hong Kong stocks in February was HKD 297.3 billion, up 107% from January's HKD 143.8 billion and up 230% from HKD 90 billion in the same period last year.

During the two sessions in early March, the National People's Congress reviewed the government work report, placing a strong emphasis on boosting consumption as a top task for this year, proposing to arrange for a special long-term national bond of 300 billion RMB to support the replacement of old consumer goods, leading the market to anticipate benefits for the home appliance, mobile phone, and automotive sectors The Hang Seng Index rose a total of 3,059 points or 15.3% in the first quarter, while the Hang Seng Tech Index increased by 926 points or 20.7%. Southbound funds became one of the main drivers of the market. According to statistics from China Galaxy Securities Research Institute, from January to March this year, the net inflow of southbound funds through the Stock Connect was HKD 119.3 billion, HKD 139.3 billion, and HKD 184 billion each month.

【April sees the start of the US-China trade war, leading to significant fluctuations in the Hang Seng Index】

Entering the second quarter, on April 2, Trump announced the implementation of "reciprocal tariffs" globally, imposing a 34% tariff on Chinese imports, far exceeding expectations, which triggered turmoil in global markets. On April 4, China retaliated by imposing a 34% tariff on US agricultural products and restricting rare earth exports. On April 9, the US increased tariffs on China to 84%, and China immediately raised tariffs on the US to 84%, further increasing them to 125% on April 11, escalating the trade war between the two sides and putting pressure on global stock markets. Affected by the escalation of the US-China trade war, the Hang Seng Index plummeted by 13.2% on April 7, marking the largest single-day point drop in history, with a trading volume reaching a record high of HKD 620.8 billion. China's official manufacturing PMI for April fell to 49, below market expectations, and the uncertainty in the macro economy troubled the market, leading to a sluggish overall performance in April, with the Hang Seng Index declining by 1,000 points or 4.3%, and the Tech Index dropping by 307 points or 5.7%.

In early May, domestic reserve requirement ratio cuts and interest rate reductions were implemented successively, and the US-China trade war also temporarily eased. Officials from both countries held trade talks in Geneva and reached a consensus, with the US temporarily reducing tariffs on China to 34% and China reducing tariffs on the US to 10%, with a temporary reduction period of 90 days (expiring on August 10). Both sides agreed to establish a US-China economic and trade consultation mechanism, clarifying the leaders of both sides to conduct further consultations on their respective economic and trade concerns. The Hang Seng Index rebounded in early May, rising by 1,170 points or 5.3%, led by technology stocks, while the banking and real estate sectors also warmed up. The Tech Index increased by 83 points or 1.6% in May. According to statistics from China Galaxy Securities Research Institute, the net inflow of southbound funds through the Stock Connect in April and May was HKD 160.318 billion and HKD 40.914 billion, respectively.

【May sees temporary tariff reductions, and the Hang Seng Index rebounds repeatedly】

In June, the market anticipated progress in US-China trade talks, and risk aversion eased. However, the conflict between Iran and Israel intensified, raising concerns about geopolitical uncertainties, and the potential rise in oil prices could affect inflation and the direction of US interest rates. The inflow of southbound funds slowed significantly compared to the first four months. The Hang Seng Index rose a total of 783 points or 3.4% in June, with a total increase of 952 points or 4.1% in the second quarter, while the Hang Seng Tech Index fell by 91 points or 1.7% in the second quarter. (ta/w/t)