AI iteration risks emerge! Hong Kong stock market shows significant divergence, with these "old favorite stocks" gaining attention

Which industries cannot be replaced by AI large models and will become the focus of public offerings after the New Year.

When fund managers realize that one technology is replacing another, the need to avoid risks makes public funds pay more attention to traditional industries. Due to the risk of AI technology replacing them, some public QDII funds heavily invested in U.S. biotech companies saw nearly a 60% decline in two days.

On February 24, this risk-avoidance demand was reflected in the Hong Kong stock market. Low valuation, high dividend yields, and small-cap “old stocks” began to perform strongly. Traditional sectors became safe havens for funds. Most of these companies are unrelated to AI technology and rely on technological narratives, with high-growth sectors that have yet to realize profits facing adjustment pressures. The defensive demand in stock selection by public funds increased significantly.

The Low-Price Stock Rally Begins

On February 24, the Hong Kong stock market showed a very distinct structural divergence. On one side, obscure stocks long ignored by public funds and on the fringes of the market suddenly surged, becoming new main themes for capital grouping; on the other side, previously popular tech and biotech stocks experienced deep corrections.

Despite AI large models continuously grabbing attention during the Spring Festival, after the holiday, market defensive sentiment in Hong Kong significantly increased. Traditional industries and obscure stocks that previously received little institutional attention and had conservative public holdings experienced strong recovery. Shipping, education, food and beverages, advertising, engineering machinery, and other cyclic and stable consumer sectors led the gains, becoming the main drivers of the rally.

For example, China International Marine Containers (CIMC), heavily held by GF Fund, surged about 11.91% in a single day; Zhenjiu Lidu, heavily held by Harvest Fund, rose nearly 5%; Yum China, heavily held by Zhang Kun, increased 2.55%; and Simor International, heavily held by Qianhai Kaiyuan Fund, rose about 1.8%. These stocks generally feature strong earnings certainty, relatively low valuations, and high dividend yields, aligning with the post-holiday pursuit of stable returns by public funds.

Additionally, small-cap stocks that have been severely oversold and experienced significant market compression attracted concentrated investment, becoming another highlight of the post-holiday rally. JiaHong Education surged about 10% that day, with a cumulative increase of over 75% since February; despite the rebound, its market cap remains below 2.5 billion HKD. Concentrate Juice producer Andeli Juice rose about 2.23% that day, with a year-to-date increase of about 19% and a 90% increase over the past year; its current market cap is only about 1 billion HKD. Advertising and marketing company DuoXiangYun soared about 7%, with a 2-month increase of 1.37 times and a nearly 3.32 times rise over three months. Even with multiple-fold gains, its market cap remains below 1.5 billion HKD.

These small-cap stocks in traditional industries collectively strengthened, reflecting fund pursuit of highly elastic targets and confirming the overall market strategy of defense and avoiding high-positioned sectors.

Risks of AI Iteration

In stark contrast to the strong performance of obscure sectors, popular growth sectors experienced significant adjustments after the holiday, especially in areas where AI technological iteration could lead to industry disruption. Related company stocks plummeted in panic.

In biotech, rapid advances in AI non-invasive cancer detection technologies—such as Alibaba’s AI-based painless early screening for gastric and pancreatic cancers using plain CT scans, and the advantages of Chinese AI capsule endoscopy in lesion recognition and localization—caused intense turbulence in the global cancer blood testing sector. Some U.S. star companies heavily held by QDII funds saw their market values collapse.

Noticing the aging population, fund managers in the capital markets have been highly enthusiastic about blood-based cancer detection technologies. In the 2025 market, some public QDII funds even heavily invested in U.S. cancer blood detection leaders. However, recent breakthroughs in Chinese AI large model technology have sharply increased product iteration risks. U.S. star cancer blood testing company GRAIL plummeted about 60% on February 20 and 23. It was once among the top ten holdings of a South China public QDII fund and was significantly reduced at the end of last year.

The collapse of the U.S. cancer blood screening sector quickly spread to similar Hong Kong stocks. On February 24, MIRXES, a leading blood testing company in Hong Kong, suddenly dropped sharply, with intraday declines reaching 26% and closing down about 21.67%, as panic over technological substitution risks spread rapidly.

The fierce competition in the AI large model industry continues, with price wars intensifying. Concerns about future profitability and worsening competitive landscape are rising. On February 24, enterprise AI service provider FanSi (Paradigm) fell 10.35%, AI medical platform Fangzhou Jianke dropped 7.42%, Health Path declined 8.79%, and AI marketing software MaiFu fell 8.60%. Additionally, star tech stocks heavily held by funds, such as Kingdee International, Meitu, Yuewen Group, HuiLiang Technology, DaMai Entertainment, Kingsoft Cloud, SenseTime, and JingTai Holdings, all declined over 5%, with the Hang Seng Tech Index components bearing the brunt.

Since October last year, the Hang Seng Tech Index has been in a continuous decline, diverging sharply from the hype around AI technology. Many ETFs tracking the index have fallen about 20% over the past four months. The core concern is that most Hang Seng Tech stocks focus on traditional software applications and internet services. Rapid iteration of AI large models in content generation, knowledge retrieval, and automation could directly replace existing products and services, further eroding mobile internet user engagement and traffic, challenging the long-term growth logic of related companies.

This logic is also spreading globally. On February 24, Indian markets experienced significant sell-offs, with the Nifty IT index dropping nearly 5% intraday, marking the fifth consecutive day of decline. U.S. investment firms issued warnings that AI technology proliferation could lead to increased white-collar job pressure and contraction in the software industry in the coming years. Overseas orders for Indian software outsourcing giants face cancellation or substantial reduction.

Focus on Domestic Demand and Recovery

Amid rising competition in AI sectors and increased volatility in tech growth stocks, several public fund managers have explicitly stated they will focus more on absolute returns. Traditional consumer sectors, benefiting from valuation advantages and fundamental recovery expectations, are once again becoming core allocation areas.

Cui Zhipeng, a fund manager at Huashang Fund, believes that by 2026, traditional consumer sectors like food and beverages are expected to see a comprehensive stabilization and rebound in fundamentals. Currently, the overall consumption industry sentiment is low, and valuations are at their lowest in five or even ten years. Compared to developed countries, China’s service consumption still has significant room for growth. In the medium term, service consumption could become a key driver of domestic demand and employment, following the replacement of old products.

Huang Yisong, a manager at Penghua Consumer Select Fund, suggests that in the structural growth sector, continued focus should be on themes such as younger consumer groups, self-pleasure consumption, domestic brands replacing imports, and improved quality-price ratios. He plans to steadily allocate in segments like food, gold jewelry, cosmetics, small appliances, and also increase positions in gaming. For core stable assets, the focus will be on companies with good industry structure and stable long-term demand, selecting stocks from the bottom up with a long-term holding approach to pursue sustainable and steady returns.

(Article source: Securities Times)