Hong Kong stocks surrendered gains after approaching a five-month high as technical indicators showed the market was overstretched, despite Goldman Sachs's move to upgrade its targets for Chinese equities and corporate earnings and fund inflows.
The Hang Seng Index was little changed at 22,616.23 on Monday, after rising as much as 1.6 per cent. The Tech Index lost 0.5 per cent, reversing a 2.4 per cent advance. The CSI 300 Index, which tracks the biggest stocks listed in Shanghai and Shenzhen, strengthened 0.2 per cent.
Technical readings on both indices signalled the market was overbought and the rally this year, powered by the breakthrough at Chinese artificial intelligence (AI) start-up DeepSeek, was excessive and due for a pullback.
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Tencent Holdings surged 4 per cent to HK$493.60, as it introduced DeepSeek's R1 model on its WeChat platform. China Unicom advanced 7.7 per cent to HK$8.87, while smartphone and car maker Xiaomi rose 1.2 per cent to HK$45.25. Among losers, Baidu slumped 6.9 per cent to HK$89.85 and JD.com fell 3.6 per cent to HK$157.10.
The market opened brightly, after Goldman upgraded its 12-month target for MSCI China Index to 85 from 75, implying a 16 per cent upside from current levels, analysts including Kinger Lau wrote in a report on Monday. The Wall Street investment bank also raised its target for CSI 300 Index to 4,700, implying a 19 per cent upside.
Widespread AI adoption could boost corporate earnings by 2.5 per cent annually over the next decade, Goldman said, while "a confidence boost could also raise the fair value of China equity by 15 to 20 per cent and potentially usher in over US$200 billion" of inflows, it added.
Beijing showed its backing for tech companies, as President Xi Jinping met many of the nation's tech leaders and start-up entrepreneurs in Beijing on Monday, the state-run Xinhua News Agency reported, confirming the Post's report. It marked the strongest sign of support for the private sector since its crackdown in early 2020.
Baidu tumbled in the worst sell-off since November 2024 after its co-founder and CEO Robin Li did not appear at the Beijing meeting.
Elsewhere, HSBC strengthened 1.2 per cent to HK$85.50 before the lender reports its full-year results on Wednesday. Earnings at the city's biggest lender probably rose 7 per cent in 2024 to US$24.1 billion, according to consensus among analysts tracked by Bloomberg. Standard Chartered, which reports on Friday, jumped 1.5 per cent to HK$109.80, with earnings seen rising 22 per cent.
Hong Kong's benchmark index has risen 13 per cent this year, while its leading tech gauge entered a technical bull market in an AI-driven rally, aided by the breakthrough at DeepSeek, whose cheaper and smarter AI model shook up the global tech industry and prompted a re-rating of Chinese equities.
Wall Street banks including JPMorgan, Morgan Stanley, Goldman turned more bullish on Chinese markets after the release of DeepSeek's AI model in late January, while UBS said the rally since that breakthrough was only less than halfway mark , based on tech-driven rallies in the past.
Other major Asian markets were mixed. South Korea's Kospi rose 0.8 per cent and Japan's Nikkei 225 added 0.1 per cent, while Australia's S&P/ASX 200 fell 0.2 per cent.
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