THE Hang Seng Tech Index Futures contract is based on the Hang Seng Tech index (HST), which tracks the 30 largest tech stocks listed in Hong Kong. HST saw a rough start to 2025, but rebounded following DeepSeek’s artificial intelligence (AI) breakthrough, as tech shares surged due to optimism from the potential increase in AI adoption and application – inspired by DeepSeek’s cost-efficient and open-source approach.
Alongside AI optimism, the HST entered a bull market and extended February’s gains to approximately 26 per cent as of market close on Feb 26 due to enthusiasm over Beijing’s renewed support for the private sector.
China’s President Xi Jinping’s high-profile meeting with private sector entrepreneurs on Feb 17 provided a key catalyst to investor sentiment – as market participants took it as a signal that regulators could be easing the years-long regulatory crackdown on the private sector that started in 2020. Xi also promised to abolish unreasonable fees and fines against private firms and to level the competitive playing field, further boosting sentiment.
At the same time, Chinese tech shares were also boosted by a slew of upbeat earnings, with Alibaba, Bilibili, and Lenovo all reporting better-than-expected results.
However, the HST dipped on Feb 24 as US President Donald Trump’s “America First Investment Policy” memorandum ordered the use of “all necessary legal instruments” to curb Chinese-affiliated investments in critical US sectors. It also aims to restrict US outbound investment in China. Despite this setback, the index quickly reversed losses as mainland investors used the selloff to add exposure, indicating strong buying demand.
HST then soared the following day and hit an intraday high of 6,026 after DeepSeek reopened access to its core programming interface after a nearly three-week suspension. Tech shares also received support from Hong Kong’s 2025 Budget, which earmarked HK$1 billion (S$173.7 million) to establish an AI research and development institute.
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Given the resilience of this rally, we believe bullish momentum is likely to persist. Unlike previous relief rallies that eventually faded due to external pressures, this recovery appears more sustained, suggesting a potential structural shift in market sentiment rather than a temporary rebound.
Hang Seng Tech outlook: a key inflection point for Chinese equities
We remain optimistic on the HST because of the recent technological breakthroughs, particularly in AI, as well as Beijing’s conciliatory tone towards the private sector.
We believe the current juncture could be a key inflection point for Chinese equities. An argument could be made that tighter chip curbs from the US could instead serve as a catalyst for Chinese tech as it could spur more investment into home-grown chip suppliers in a bid for self-sufficiency.
While DeepSeek’s AI breakthrough and Beijing’s softer stance towards the private sector have been the key drivers of this rally, we also expect more proactive fiscal and monetary policy in the pipeline to counteract Trump’s tariff risks.
However, we remain cautious as external dynamics, particularly trade talks with the US, will remain an overhang.
In our view, we believe that it is unlikely that the private sector will return to the freewheeling days of the past, but regulators will likely still look to loosen its stranglehold over the sector. This will provide a much-needed growth engine for the world’s second-largest economy to combat a property crisis at home and threats of a US-China trade war.
Alongside DeepSeek, major Chinese tech companies from Baidu to Tencent have invested money to develop their own AI models. The government has also made clear that its priority is on industries that are strategically important and pivotal to its geopolitical rivalry with the US such as AI and semiconductors. In this regard, we expect the HST to be the biggest beneficiary due to its tech-heavy composition.
From a technical standpoint, the HST Futures contract’s daily chart shows the contract having entered a bull market and rallying to its highest since late 2021 after the previous upswings, such as the October rally, failed to sustain momentum. Key levels to watch will be the November 2021 high of 6,726 and the December 2021 high of 6,169. Some other key technical observations supporting our analysis are:
The 14-day Relative Strength Index (RSI) indicator is in overbought territory at the 71.5 level, indicating that the contract could see short-term consolidation.
The 50-day Moving Average remains above the 200-day Moving Average, indicating that bullish momentum remains intact.
We see near-term resistance around the key psychological level of 6,000. The contract could see near-term consolidation and profit-taking given that it has entered overbought territory. Nevertheless, we view any short-term dips as a buying opportunity and see it as an entry opportunity.
Moving forward, we expect to see higher highs and higher lows. Based on a Fibonacci Extension drawn from the September 2024 low to the October 2024 high, which then extends to the January 2025 low; If the key 6,000 psychological resistance level is breached, we anticipate that the contract will head further upwards to test the 100.0 per cent extension level around 6,230 and the 123.6 per cent extension level at around 6,720. Our best-case scenario would see the contract testing the 138.2 per cent extension level around 7,020.
The writer is a senior investment analyst at Phillip Nova
