UBTech’s humanoid robot is displayed during the 27th China Beijing International High-Tech Expo at the China National Convention Center on May 8, 2025 in Beijing, China.
Vcg | Visual China Group | Getty Images
China’s Hong Kong-listed technology shares fell into bear market territory on Thursday, a sharp reversal from last year’s rally as tax worries and global risk aversion dampened investor confidence.
Hang Seng Tech Index, Mainland Chinese technology firms dominateIt fell more than 1%, sending the index down just over 20% from its October peak. The index fell for the sixth session in a row.
Market participants pointed to the risk of an increase value added tax on internet services as the main trigger of the recent decline. The concern is that internet platforms could be next, following VAT hikes imposed on certain telecom services.
Speculation was briefly extended The new policy is fueling fears of adverse effects on online gaming and other digital transactions, a sector that has suffered years of tightening regulation. After a decline in tech stocks, officials on Tuesday dismissed speculation about a levy on the gaming industry.
“The sell-off in recent days is due to concerns over a possible increase in VAT on internet services, online games and other online transactions. This follows the recent increase in VAT on certain telecommunications services,” said Qi Wan, investment strategist at UOB Kay Hian.
Performance of the Hang Seng Tech Index over the past year
The slide in Chinese tech stocks also coincided with broader volatility in global tech markets fueled by fears over artificial intelligence-driven disruptions at software companies.
“For me, it’s a global flow of bad news,” said Felix Lee, senior equity analyst at Morningstar.
“We’ve been told that Anthropic is releasing an AI plugin that will automate legal tasks, create fear in law firms and reduce sales of the broader software; then we have rumors of VAT hikes on Chinese internet firms and reports of a rift between Nvidia and OpenAI, risk-averse sentiment has set in on the hardware AI trade.
Despite the steep decline, some investors see the sell-off as a corrective move rather than the start of a deeper downturn. Looking at the broader Hong Kong and Chinese equity markets, recent weakness appears to be concentrated in pockets of previous outperformance, according to Mornings.
“I see this action as a healthy pullback, and it’s mostly concentrated in sectors that have outperformed fair values,” said Lorraine Tan, the firm’s director of equity research in Asia.
Other asset managers say the underlying outlook for Chinese technology has not deteriorated significantly, even if positive triggers are not in sight any time soon. “Catalysts for the sector have been somewhat lacking,” said Wei-Sern Ling, managing director of Union Bancaire Privée.
“Recently there has been some regulatory noise in travel and e-commerce, which we think is not systemic, but specific, and there are also some concerns about value-added tax,” Ling said.
“Fundamentally, nothing has changed to undermine our positive outlook (for Chinese tech stocks). Valuations continue to be supportive, sector earnings have potential for a rebound, and AI may provide an influx of catalysts ahead.”