Investors who bought the Hang Seng Tech Index (恒生科技指数) as their primary vehicle to capture China’s technological ascent are facing a stark reality in 2025’s roaring AI bull market. Despite the broader Hang Seng Index (恒生指数) climbing 27.7%, the so-called “Hong Kong version of the Nasdaq” only managed a 23.5% gain. This underperformance against the benchmark is not a statistical anomaly but a symptom of a deeper, structural misalignment. As capital globally rushes to reprice the productivity promise of artificial intelligence around computing power, foundational models, and infrastructure, the Hang Seng Tech Index’s core remains weighted heavily towards mature consumer internet platforms and manufacturing giants. For sophisticated investors, the critical question is whether this flagship index is destined to consistently miss the AI mega-wave.
The Performance Paradox: A Bull Market With a Caveat
The narrative of 2025 was unequivocally driven by artificial intelligence. Global markets rewarded companies at the forefront of the AI revolution, from semiconductor fabricators to cloud infrastructure providers. In China, this frenzy was even more pronounced on the mainland. While the Hang Seng Tech Index posted respectable gains, it was significantly overshadowed by the explosive rallies in A-share AI champions.
The A-Share AI Juggernaut
Across the border, the story was one of pure, unadulterated AI momentum. Cambricon (寒武纪), a leading AI chip designer, saw its stock price surpass that of traditional bellwether Kweichow Moutai (贵州茅台). Industrial Fulian (工业富联), a key manufacturer of AI servers, saw its market capitalization soar above 1.2 trillion yuan. Zhongji Innolight (中际旭创), a top producer of optical modules critical for data centers, recorded an annual turnover of 2.5 trillion yuan, becoming the most actively traded stock on the A-share market. These companies, positioned directly in the AI value chain’s hardware and infrastructure layer, became the darlings of investors betting on China’s AI future, propelling the broader A-share tech sector to outperform its Hong Kong-listed counterpart.
A Tale of Two Indices
This divergence highlights a fundamental disconnect. The Hang Seng Tech Index, designed to track the 30 largest technology companies listed in Hong Kong, is failing to capture the most dynamic segment of China’s tech innovation: native AI power. The index’s composition, heavily reliant on the business models of the past decade, is causing investors to systematically miss the AI mega-wave unfolding in China’s capital markets. The beta—the market-wide growth—driven by AI is palpable, but the Hang Seng Tech Index is not the pure-play vehicle to harness it.
Anatomy of an Index: Structural Weaknesses Exposed
To understand why the Hang Seng Tech Index continues to miss the AI mega-wave, one must dissect its asset structure. The problem is not a lack of technology companies, but a misalignment between the index’s weightings and the new loci of value creation in the AI era.
The Dominance of Legacy Internet Platforms
The top ten constituents of the Hang Seng Tech Index, accounting for over 70% of its weight, tell a clear story. The list is dominated by consumer internet behemoths: Alibaba (阿里巴巴), Tencent Holdings (腾讯控股), Meituan (美团), JD.com (京东集团), NetEase (网易), Kuaishou (快手), and Baidu (百度集团). While these companies undoubtedly possess AI capabilities—Tencent has its Hunyuan model, Alibaba has Tongyi Qianwen—the market’s primary valuation logic remains tethered to their traditional cash cows: e-commerce commissions, gaming revenue, and food delivery orders.
A Hong Kong-focused fund manager privately offered an analogy: “To value Tencent’s AI, you’d have to mentally set aside its tens of billions in annual gaming revenue to see the underlying model capability. No valuation model can cleanly make that separation.” Consequently, massive new AI investments by these platforms are often viewed by the market as cost centers, especially when they coincide with intense subsidy battles in core businesses, further dulling the stock price response to their AI initiatives.
The Dilutive Effect of Manufacturing Heavyweights
Compounding the issue is the significant weighting of manufacturing-oriented companies, which broadens the index’s definition of “tech” but dilutes its AI purity. Companies like BYD (比亚迪股份), NIO (蔚来), Li Auto (理想), and Sunny Optical (舜宇光学科技) are included, yet their core valuation narratives revolve around production capacity, sales volume, and gross margins—not the algorithms, computing power, and foundational models at the heart of the AI revolution.
This inclusion creates a hybrid index structure closer to a “new economy manufacturing + internet application” composite rather than a focused, forward-looking AI productivity index. The result is a peculiar mosaic where the narrative of internet platform traffic sits alongside the story of new energy vehicle manufacturing, with only sporadic representation from semiconductor foundries like SMIC (中芯国际).
Systemic Roots: Why the Hang Seng Tech Index is Structurally Lagging
The Hang Seng Tech Index’s failure to capture China’s AI core assets is not accidental but stems from a systemic mismatch between its underlying rules and the pace of industrial evolution. This misalignment ensures the index is perpetually playing catch-up, destined to miss the initial surge of each new technological wave.
The “Backward-Looking” Indexation Problem
Fundamentally, the Hang Seng Tech Index is a “backward-looking” or ex-post index, not a “forward-looking” one. Its constituent selection criteria—based on market capitalization, liquidity, and historical financial performance—naturally favor mature companies that have already achieved scale and proven business models. These rules are ill-suited to capturing nascent, pre-profitability AI-native firms that are at the cutting edge of technological breakthrough but have not yet demonstrated massive earnings.
This methodology anchors the index’s definition of “tech” to the China New Economy paradigm of the 2010s, centered on internet platforms and hardware. It explains why Hong Kong has become a primary listing venue for manufacturing and consumer internet firms undergoing reevaluation, while the most explosive, pure-play AI growth stories have emerged elsewhere.
The Great Asset Divide: HK vs. A-Shares vs. Private Markets
A clear tripartite division has emerged in China’s tech asset landscape, and Hong Kong holds the least favorable position for capturing AI’s foundational value.
- Hong Kong (HK): Home to “the present of China’s Internet and New Economy”—mature platforms and scaled manufacturers.
- A-Shares (A股): Hosting “the future of China’s Scientific Innovation and New Infrastructure”—a dense cluster of pure-play AI companies across the value chain, from chip design (Cambricon, Hygon 海光信息) and servers (Industrial Fulian) to optical modules (Zhongji Innolight, Eoptolink 新易盛).
- Private Markets (一级市场): Where the most advanced foundational model companies, like Moonshot AI (月之暗面), Baichuan AI (百川智能), and StepFun (阶跃星辰), reside, amassing war chests that often reduce the immediate need for an IPO.
This structural reality means that even when relevant companies exist in Hong Kong, their impact on the index’s “AI quotient” is limited. For instance, SMIC, the index’s highest-weighted stock, is more tied to broader consumer electronics cycles than being a pure AI computing power bellwether. The absence of core players in hardware and foundational models leaves the Hong Kong market, and by extension the Hang Seng Tech Index, without a genuine tool to track “China’s AI productivity.”
Market Implications: When Technological Breakthroughs Hurt Your Portfolio
The consequences of this structural misalignment are not abstract; they manifest directly in portfolio performance. The global tech stock pricing logic is undergoing a seismic shift from “application narrative” to “productivity narrative,” creating a clear capital reallocation chain: Computing Infrastructure → Foundational Models & Algorithms → Industry Applications. Value is being reassessed from the bottom up.
The Pricing Power Shift
The early 2026 earnings season laid this bare. While giants like Amazon, Google, and Microsoft announced capital expenditure plans in the hundreds of billions for AI infrastructure, and Chinese platforms like Tencent and Alibaba deployed billions in user subsidies for their AI applications, the market’s verdict was clear. Companies perceived as merely burning cash on application-layer subsidies faced valuation compression, while those providing the underlying models and computing power continued to command premium valuations. The Hang Seng Tech Index, strong in applications but weak in core compute and frontier models, is inherently positioned on the wrong side of this capital migration.
The Perils of Competitive Disruption
Perhaps more dramatically, breakthroughs in Chinese AI can directly harm Hang Seng Tech Index investors. A recent case illustrates this starkly. When ByteDance (字节跳动) began internal testing of its Seedance 2.0 video generation model, it triggered rallies across A-share AI computing power and content creation stocks. However, within the Hang Seng Tech Index’s top ten holdings, six companies have direct or indirect competitive overlap with ByteDance.
Seedance 2.0’s potential to radically lower content production costs threatened to make Tencent’s 1-billion-yuan “AI red packet” campaign and Alibaba’s 3-billion-yuan “Spring Festival treat” plan look like costly, old-world marketing. Furthermore, instead of boosting confidence in Kuaishou’s own AI video model Kling (可灵), the market’s first reaction was to reassess the valuation ceiling for Kuaishou’s entire AI business in the face of such formidable competition. For index investors, a major technological advance became a net negative event.
The Path Forward: Can Hong Kong Re-Anchor the “AI China” Narrative?
The question for 2026 and beyond is whether Hong Kong can adapt to become a primary capital battlefield for China’s AI era. The status quo, where the Hang Seng Tech Index continues to miss the AI mega-wave, is untenable for Hong Kong’s relevance as an international financial center. Rectification requires action on multiple fronts.
Incremental Improvements and New Listings
There are nascent signs of change. Foundational AI model companies like Zhipu AI (智谱) and MiniMax chose to list on the Hong Kong Stock Exchange (港交所) in January 2026. Domestic GPU designers like Biren Technology (壁仞科技) and Iluvatar Corex (天数智芯) have also completed their IPOs. These companies begin to fill the glaring gap in AI foundational标的 (underlying assets) within the Hong Kong market and are becoming essential holdings for global funds seeking direct China AI exposure.
However, these are new entrants. They will require several quarters of market capitalization growth and trading history before they meet the strict inclusion criteria of the Hang Seng Tech Index. For now, they represent hope for the future composition of the market, but not an immediate remedy for the index’s current shortcomings.
A Strategic Imperative for Investors and the Market
In the near to medium term, investors must recalibrate their expectations and strategies:
- Acknowledge the Lag: Recognize that the Hang Seng Tech Index remains a portfolio of “last-generation tech assets” and is not a direct tool for capturing the beta of China’s AI industrial wave.
- Look Beyond the Index: To gain genuine exposure to computing infrastructure, core hardware, and underlying AI technology, investors must look to the A-share computing power chain or actively screen for emerging AI champions within the Hong Kong market that are still building their market cap.
- The Market’s Challenge: For Hong Kong to truly reshape its relevance, it cannot passively wait for index rebalancing. It must enhance its overall appeal in terms of liquidity, valuation frameworks, and industrial clustering to accelerate the migration of China’s AI core assets to its shores. This is a battle Hong Kong must win to maintain its financial center status.
The AI revolution is redefining value creation across global equity markets. In China, this dynamic is playing out with intense clarity, exposing the structural rigidities of established investment vehicles like the Hang Seng Tech Index. Its underperformance in the 2025 bull market is a powerful signal that its underlying asset mix is misaligned with the new sources of technological growth. While new listings offer a glimmer of hope, the onus is on investors to look beyond the benchmark index to construct portfolios that genuinely capture China’s AI ambition. For Hong Kong, the imperative is even greater: to evolve its market ecosystem swiftly, or risk becoming a secondary venue in the most important capital story of the decade. The wave is here; the question is who will catch it, and who will be left watching from the shore.