Hong Kong stocks experience structural divergence, is the spring of "Old Deng stocks" here?

Investor Network Lead | Xuan Yuan

The rapid advancement of AI technology is triggering an unprecedented industry restructuring storm in the capital markets.

As the iteration speed of large AI models exceeds market expectations, the risk of technological substitution is shifting from concept to reality. The Hong Kong stock market has taken the lead in experiencing extreme structural divergence: on one side, high-growth sectors reliant on technological narratives are collectively plunging, with biotech and AI tech stocks experiencing panic declines; on the other side, undervalued, high-dividend, small-cap “old economy” stocks are rising against the trend, with traditional industries becoming the core safe havens for funds. The stock selection logic of public funds is also shifting accordingly—focusing on defensive needs, avoiding AI substitution risks, and embracing performance certainty—becoming the main theme after the market rebound.

On February 24, the Hong Kong stock market showcased a stark contrast. Previously neglected traditional sectors experienced strong valuation recovery, with shipping, education, food and beverage, engineering machinery, and other cyclical and stable consumer sectors becoming the main drivers of the rally. These large caps generally feature strong earnings visibility, valuations at historic lows, and high dividend yields, aligning closely with current fund preferences for stable returns and risk avoidance at high levels.

That day, some traditional sector holdings performed strongly. Among them, China International Marine Containers rose 3.86%, and Zhenjiu Lidu increased 3.94%. Besides these leaders, long-term oversold, severely market-cap compressed small-cap traditional stocks became prime targets for capital accumulation. For example, Jiahong Education surged about 10% today, with a cumulative increase of over 75% since February; despite the rebound, its market cap remains under HKD 2.5 billion. Andeli Juice rose about 2.23% today, with a year-to-date increase of about 19%, and a 90% increase over the past year, with a current circulating market cap of only about HKD 1 billion. Duosang Cloud, driven by micro-cap stock momentum, surged 1.37 times in February, with a nearly 3.32 times increase over the past three months. Even after multiple-fold gains, its market cap remains under HKD 1.5 billion. The concentrated strength of these small-cap traditional stocks reflects both the pursuit of high elasticity targets by funds and confirms the current market’s overall defensive stance, resolutely avoiding high-position sectors.

In stark contrast to the relative strength of traditional sectors, hot growth sectors that were previously highly favored are now facing real challenges, with significant stock price adjustments. The biotech sector, especially early cancer screening, is at the forefront. U.S. biotech star GRAIL, whose multi-cancer screening test Galleri failed to meet primary endpoints in key clinical trials, saw its stock plummet about 60% on February 20 and in subsequent trading days. This event quickly sparked concerns about similar technological approaches, with risk transmission to Hong Kong stocks. On February 24, MIRXES, a leading blood testing company, experienced a maximum intraday drop of 26%, closing down about 21.67%.

Meanwhile, the intense competition within the AI large model industry and the uncertain profitability outlook have also caused market concerns about related tech stocks. On February 24, the Hang Seng Tech Index underperformed, with intraday declines reaching 2.42%. Despite the booming AI technology itself, markets worry that rapid iteration may directly replace existing software applications and services or divert internet traffic, challenging the long-term growth logic of related companies.

This market turbulence driven by technological iteration and industry uncertainty is not unique to Hong Kong stocks but resonates globally. On February 24, Indian markets experienced significant sell-offs, with the Nifty IT index plunging nearly 5% intraday. A U.S. investment firm warned that the widespread adoption of AI could, in the coming years, put pressure on white-collar employment and lead to contraction in the software industry, posing a potential threat to India’s core IT outsourcing sector.

Against the backdrop of rising AI sector saturation and increased volatility in tech growth stocks, public fund managers are shifting their allocation strategies—more focused on absolute returns. Traditional consumer sectors, benefiting from valuation advantages and fundamental recovery expectations, are once again attracting institutional attention. HuaShang Fund believes that by 2026, sectors like food and beverage are expected to see a comprehensive stabilization and rebound in fundamentals, with overall consumer industry sentiment currently low and valuations at historic lows.

The extreme divergence in Hong Kong stocks clearly shows that investment logic is being profoundly influenced by AI technology. When technological substitution shifts from imagination to tangible risk, traditional industries with solid performance and cash flow—those difficult for AI to easily replace—become natural safe havens for funds. Conversely, high-growth sectors relying on technological narratives and with unproven profitability, if unable to demonstrate their irreplaceability and commercial value amid the AI wave, will face dual scrutiny of valuation and performance. In this wave of industry transformation and market reassessment driven by AI, identifying the right positioning and balancing risk with certainty has become the core challenge for investors. (Produced by Think Finance)■