Since the beginning of this year, the Hong Kong stock market has entered a new phase of robust growth, particularly with technology stocks performing exceptionally wellOn February 21, the Hang Seng Tech Index surged by an impressive 31.14%, reaching a three-year peakData from Wind indicates that through January 2025, there was a continued substantial net inflow of capital from Mainland China, amounting to approximately HKD 125.6 billion, which is the highest monthly net inflow since February 2021. During the week of February 10 to 14, the cumulative trading volume of the Southbound Stock Connect hit a record high of HKD 655.442 billion, a historic benchmark since the inception of Stock ConnectThe tech and internet sectors, driven by breakthroughs in the DeepSeek-R1 model, have seen growth rates surpassing 35%.

Looking at individual stocks, companies like Xiaomi, Lenovo, BYD, SMIC, Alibaba, Tencent, and Meituan have demonstrated strong performancesXu Tingquan, deputy director of the Overseas Equity Investment Department at HSBC Jintrust Fund and manager of the selected Southbound Stock Connect fund, attributes the strengthening of the Hong Kong stock market to three main factors: lower than expected geopolitical risks, a renewed recognition of the value of Chinese assets due to DeepSeek, and policy support that has buoyed investor sentiment.

An investor remarked, “Chinese technology stocks still harbor substantial growth potentialThe Hang Seng Tech Index could potentially see growth rates akin to that of the Nasdaq in the not-so-distant futureFactors such as the DeepSeek AI model and the solid fundamentals of tech companies have bolstered investor optimism.”

Moreover, on the afternoon of February 21, the AI sector received more good news with the recent central enterprise “AI+” special action deployment meeting, which aimed to outline the key tasks moving forwardAs stock prices rise, several international investment banks have simultaneously been adjusting target prices for associated companies

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On the same day, Laura Wang, Morgan Stanley's chief equity strategist for China, noted that although both A-shares and Hong Kong stocks have seen significant upswings since late January, foreign capital has yet to genuinely engage in this rebound, suggesting there’s substantial room for foreign allocation.

In more detail, JPMorgan has recently released a report raising BYD's target price from HKD 475 per share to HKD 600 per share while reiterating a “Buy” ratingJPMorgan believes that BYD is well-positioned to become the “Toyota” of the global electric vehicle market, with considerable long-term growth potentialThey anticipate that BYD's global deliveries could reach as high as 6.5 million units in the following year, with around 1.5 million units expected from overseas markets, projecting an increase in market share in the global light vehicle sector from 3% in 2023 to 7%. The firm predicts that BYD will maintain approximately 22% market share in the new energy vehicles sector.

Alibaba's stock targets have also seen significant upward revisionsGoldman Sachs has increased the target price for BYD shares on the Hong Kong exchange from HKD 114 to HKD 156, a 37% rise, while also raising Alibaba's target price for American Depository Receipts from USD 117 to USD 160, maintaining a “Buy” ratingGoldman Sachs points out that Alibaba's e-commerce operations in China are stabilizing, with expectations of accelerated revenue growth from Alibaba Cloud, predicting growth rates of 23% and 25% for the fiscal years 2026-2027. Although buyback activity may slow down, potentially dependent on stock price performance, Goldman expects Alibaba to continue rewarding shareholders through share repurchases, dividends, and investments in high-growth businessesAdditionally, Jefferies has raised the target price for Alibaba's U.S. shares from USD 156 to USD 160, and JPMorgan has adjusted Alibaba's target from USD 125 to USD 170.

Citi has also lifted Lenovo Group's target price from HKD 11.5 to HKD 14.3. They noted that Lenovo’s third-quarter earnings for the 2025 fiscal year vastly exceeded both Citi's and the market's expectations by about 81% and 90%, respectively

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Goldman Sachs has similarly increased Lenovo's target price from HKD 13.28 to HKD 14.9 while maintaining a “Buy” ranking for the company.

At the same time, enthusiasm for stock buybacks persists among Hong Kong-listed companiesData shows that approximately 130 firms have implemented buybacks this year, accumulating over HKD 30 billion in repurchasesNotably, major shareholders in these firms have actively increased their stakes in their companiesIndustry insiders explain that these buybacks and increases in holdings signify robust confidence among Hong Kong-listed companies and their significant shareholders regarding their value, indicating a potential new wave of value investment opportunities.

Additionally, the enthusiasm of A-share companies to go public in Hong Kong remains highRecent statistics suggest that more than 20 A-share listed companies have taken steps to launch in Hong Kong since 2025, with well-known firms such as CATL, valued at trillions, and others like Haidilao and Heng Rui Pharmaceutical leading this movementThe evolving policy support, changes in the market environment, and the growing needs of firms make Hong Kong's comparatively lenient, mature, and internationalized listing conditions increasingly attractive to A-share firmsChen Ge, co-director of UBS Securities' global investment banking division, notes that “first A, then H” has been the trend for new listings in the Hong Kong stock market lately, with expectations that nearly 30 A-share firms will list in Hong Kong in 2025.

On the outlook for the Hong Kong market's future performance, GF Fund expresses caution about the potential for increased short-term volatility due to rapid gains in technology sectors, advising against hasty moves to chase pricesNonetheless, from a longer-term perspective, if this represents a significant market rally worth participating in, further investment opportunities may arise as industrial trends evolve through different phases.

For specific investment directions, Huabao Fund suggests a “technology spear with dividend shield” strategy, as the increasing prevalence of AI applications presents considerable investment opportunities within Hong Kong's tech sector

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In a low-interest-rate environment, the high dividend yield of Hong Kong stocks, especially certain state-owned enterprises, remains particularly appealing.

Gua Tai Junan's analysis posits that as Hong Kong stocks trend upwards, attention should be directed towards sectors with stable earnings, improved industry dynamics, or policy supportIn the short term, the expectations surrounding key meetings' policies and improvement in overseas tariff policies have bolstered the rally, while breakthroughs like DeepSeek in the AI domain power this momentumThey recommend focusing on the internet industry, which benefits from improved competition dynamics; consumption sectors buoyed by policy support and recovery such as electronics, semiconductors, and automotive; as well as industries with stable earnings, including finance, utilities, and telecommunications.

XU Tingquan comments that within the internet sector, reasonable, even undersaturated valuations, coupled with strong repurchase and dividend potential, enhance the attractiveness of leading companiesIn technology hardware, increasing foreign capital expenditure in cloud infrastructure boosts the demand for advanced packaging and equipment, catalyzing supply and growth in AI server supply chainsThe growing penetration of AI PCs and smartphones is expected to yield shifts in supply chains that could advance both volume and pricing.

“DeepSeek is incredibly exciting,” says NVIDIA's Huang Renxun.

As NVIDIA prepares to report its fourth-quarter earnings on February 26, CEO Huang Renxun finally addressed DeepSeekHe expressed that the energy brought about by DeepSeek and its open-source inference model is “incredibly exciting”, yet investors “misjudged” its implications for NVIDIA and the AI sectorHe emphasized that it will not diminish the demand for AI computing but will instead expand and accelerate the market's pursuit of more efficient AI models, thereby driving the entire industry forward.

Huang's statement comes almost a month after the release of the open-source version of the R1 model from DeepSeek, causing significant commotion within the AI market and substantially impacting NVIDIA

He noted that the release of R1 is fundamentally beneficial to the AI market and will expedite the adoption of AI technology, signifying that the market would no longer be reliant on computing resources produced by NVIDIA. “This has brought to everyone's attention that the efficiency of the models exceeds our expectations,” Huang stated. “Therefore, it is continuously expanding and accelerating the popularization of AI.”

He further reiterated that despite the advancements made by DeepSeek in pre-trained AI models, subsequent training will still be crucial and will demand significant resources.

(Note: This article does not constitute any investment advice.)