In review, the Hang Seng Index rose nearly 28% for the entire year of 2025, while the Tech Index increased by nearly 24%

The Hang Seng Index reversed its four-year decline last year, with an annual increase of 17.7% (the Tech Index rose over 18%). From early to mid-January this year, Hong Kong stocks trended downward, as the market worried that the inauguration of U.S. President Trump would exacerbate uncertainty, with the Hang Seng Index dropping to 18,671 points on January 13. However, by late January, the emergence of the R1 open-source large model from the mainland startup artificial intelligence (AI) company DeepSeek sparked a wave of enthusiasm, leading the market to anticipate that Chinese companies could leverage AI to reduce costs and improve efficiency, prompting a reassessment of Chinese assets. Although the market was disturbed by news of the U.S. "reciprocal tariffs" throughout the year, China's total export value still rose by 5.4% year-on-year in the first 11 months of this year, with a trade surplus exceeding $1 trillion for the first time (growing over 21% year-on-year). The onshore RMB has appreciated by over 4% against the U.S. dollar this year, with significant inflows of southbound capital, totaling a net inflow of 1.4 trillion yuan, a year-on-year increase of over 73% compared to last year's net inflow of 807.9 billion yuan, with strong performance from Hong Kong Stock Connect targets.

In the first quarter, DeepSeek led the reassessment of Chinese assets, with the Hang Seng Tech Index outperforming (up 20% year-on-year); although the second quarter was affected by news of the U.S. "reciprocal tariffs," newly listed consumer stocks and innovative pharmaceutical sectors in Hong Kong began to "take off." As A-shares strengthened, in the third quarter, mainland residents began to "activate deposits," with Chinese stocks, funds, and other assets becoming the main alternatives for household savings, focusing on domestic chip substitution, capital expansion in domestic computing power, and innovative pharmaceuticals "going overseas." In the fourth quarter, the U.S. and China agreed to pause the tariff war for a year, and Alibaba launched the Qianwen chatbot, entering the consumer AI market. The Hang Seng Index reached its annual high of 27,381 points in early October but was later affected by concerns over profit-taking due to the Bank of Japan's interest rate hike, discussions about a U.S. AI bubble, and a slowdown in net inflows from the north.

In summary, for the entire year of 2025, the Hang Seng Index closed at 25,630 points, up 5,570 points or 27.77%; the National Index closed at 8,913 points, up 1,623 points or 22.3%; and the Tech Index closed at 5,515 points, up 1,047 points or 23.5%.

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

At the beginning of this year, due to concerns that the inauguration of U.S. President Trump would exacerbate uncertainty, the Hang Seng Index dropped to its annual low of 18,671 points on January 13, with a cumulative decline of 1,388 points or 6.9% for the year. Subsequently, the emergence of the R1 open-source large model from the mainland startup artificial intelligence (AI) company DeepSeek led to a surge in AI-related technology and internet sectors. In mid-February, President Xi Jinping held a symposium for private enterprises for the first time in seven years, meeting with representative private entrepreneurs from various industries, including several representatives from AI and technology companies, such as DeepSeek's founder Liang Wenfeng, Yushu Technology's founder Wang Xingxing, Alibaba's (09988.HK) founder Jack Ma, and Tencent's (00700.HK) founder Pony Ma, demonstrating the central government's high regard for the role of technology innovation private enterprises and the technology industry as a driving force for future economic growth, indicating that technology private enterprises are supported by national policies, which can alleviate market concerns about regulatory risks related to the industry This has led to a revaluation of Chinese tech stocks.

After Alibaba, a major tech company, attended a private enterprise symposium in mid-February, it announced later that month that it would invest over 380 billion yuan in the next three years to build cloud and AI hardware infrastructure, exceeding the total amount invested in the past decade. This news boosted the overall investment atmosphere in the Hong Kong stock market and, along with DeepSeek factors, propelled the "Hong Kong tech bull" market.

During the two sessions in early March, the National People's Congress reviewed the government work report, which proposed vigorously boosting consumption as this year's primary task. It suggested arranging 300 billion yuan in ultra-long-term special government bonds to support the replacement of old consumer goods, leading the market to anticipate that certain sectors such as home appliances, mobile phones, and automobiles could benefit. The Hang Seng Index rose a total of 3,059 points or 15.3% in the first quarter, while the Hang Seng Tech Index rose 926 points or 20.7%. The average daily trading volume of Hong Kong stocks in the first three months was 242.7 billion yuan, a significant increase of 144% compared to 99.4 billion yuan in the same period last year. From January to March this year, the net inflow of northbound funds was 125.6 billion yuan, 152.8 billion yuan, and 160.3 billion yuan, showing a significant year-on-year increase.

【China and the U.S. Temporarily Reduce Tariffs, Hang Seng Index Rises in Price and Volume】

Entering the second quarter, U.S. President Trump announced in early April the implementation of "reciprocal tariffs" globally, significantly exceeding market expectations and causing turbulence in global markets. The Hang Seng Index dropped over 3,000 points on April 7, marking the largest single-day point drop in history, with trading volume also reaching a new high. The official manufacturing PMI in mainland China fell to 49 in April, below market expectations, and with macroeconomic uncertainties troubling the market, the Hang Seng Index fell a total of 1,000 points or 4.3% in April, while the Tech Index fell 307 points or 5.7%. In early May, China and the U.S. issued a joint statement to mutually reduce tariffs for 90 days, coupled with a series of policies from the mainland to boost market sentiment, leading to a rebound in the Hang Seng Index. From April to June this year, the net inflow of northbound funds was 166.6 billion yuan, 45.6 billion yuan, and 80.25 billion yuan, respectively. The Hang Seng Index rose a total of 952 points or 4.1% in the second quarter, while the Hang Seng Tech Index fell 91 points or 1.7%.

As we enter the second half of the year, the market anticipates capital expansion in domestic computing power. At the end of August, Alibaba announced its financial results for the first fiscal quarter of FY2026 (ending June this year), with net profit rising 78% year-on-year, and revenue from its cloud intelligence group increasing 26% year-on-year, mainly driven by growth in public cloud business revenue. Revenue from AI-related products has achieved triple-digit year-on-year growth for eight consecutive quarters. Morgan Stanley indicated that China's top-quality AI enabler (referring to Alibaba) is unfolding, with Alibaba becoming the leader of the "tech bull" market in Hong Kong stocks. Northbound funds continued to support Hong Kong stocks, with a cumulative inflow of over 188.5 billion yuan in September alone, an increase of about 68% month-on-month, while the average daily trading volume of Hong Kong stocks in September was 316.7 billion yuan, up 87% from 169.2 billion yuan in the same period last year. The Hang Seng Index rose a total of 2,783 points or 11.6% in the third quarter, while the Tech Index rose 1,162 points or 22% 【Fourth Quarter Hang Seng Index Fluctuates as U.S. Rate Cuts Slow Down】

Entering the fourth quarter, the market is volatile and lacks direction. After a surge in the market, the expectations and positions in the technology growth sector are relatively high, making investors sensitive to negative news. Additionally, concerns about the AI bubble in the U.S. stock market, the longest government shutdown in U.S. history lasting 43 days from October to November, and the uncertainty surrounding the Federal Reserve's interest rate cut expectations have all amplified market fluctuations. The Hang Seng Tech Index fell from a high of 6,715 points on October 2 to a low of 5,348 points on December 16, a decline of 20%. Investors are also worried about the sales performance of the mainland real estate market and the debt restructuring of real estate companies.

With the implementation of "anti-involution" measures in the mainland, there is a legal and regulatory governance of low-price disorderly competition in industries including photovoltaics, energy storage, lithium batteries, cement, non-ferrous metals, and new energy vehicles, promoting a reasonable rebound in prices. In November, the Consumer Price Index (CPI) in the mainland rose by 0.7% year-on-year, the highest since March 2024, while the Producer Price Index (PPI) rose by 0.1% month-on-month in November, marking the second consecutive month of month-on-month increases. This has led the market to speculate whether the mainland is transitioning from the "active destocking" phase (demand decline -> inventory decline -> corporate profit decline) to the "passive destocking" phase (demand recovery -> inventory decline -> corporate profit recovery). In mid-December, the Central Economic Work Conference stated that efforts must be made to strengthen internal capabilities to cope with external challenges, continue to implement moderately loose monetary policies, flexibly and efficiently use various policy tools such as reserve requirement ratio cuts and interest rate cuts, focus on stabilizing the real estate market, and deeply implement special measures to boost consumption. The market anticipates that more new policies to stimulate domestic demand will be introduced at next year's Two Sessions. From October to December this year, the net inflow of northbound capital was 92.5 billion, 121.9 billion, and over 19.4 billion, with a noticeable decrease in December. In the fourth quarter alone, the Hang Seng Index fell by 1,225 points or 4.6%. (ta/w/t)