The Hang Seng Tech Index tumbled to near a six-month low amid hawkish signals from the United States central bank and escalating Middle East tensions that dampened global risk sentiment, yet analysts noted that the gauge’s valuation has now fallen about one standard deviation below its historical average — presenting a potentially attractive entry point for patient investors.

The index, which tracks the 30 largest technology companies listed in Hong Kong, fell 2.48 percent on Friday, extending losses after slipping below the 5,000-point mark the previous day.

Heavyweight technology stocks led the decline. Smartphone and electric-vehicle giant Xiaomi slid nearly 8.6 percent, while Alibaba fell 6.3 percent following reporting revenue that missed market expectations.

From a technical perspective, Liu Gang, chief offshore China and overseas strategist at CICC Research, said the index’s price-to-earnings ratio has fallen about one standard deviation below its historical average, a level that suggests it is cheaper than usual compared with its own past.

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For some investors, current valuations and sentiment provide “an opportunity for gradual, left-side positioning”, he said.

Since peaking in early October 2025, the Hang Seng Tech Index has dropped more than 27 percent as of Friday, or over 1,800 points. In contrast, the benchmark Hang Seng Index slipped only about 7 percent over the same period.

When explaining the reasons behind such a significant performance gap, Huatai Securities said global technology stocks experienced a widespread valuation contraction from October to November.

The Hang Seng Tech Index faced heavier pressure as “intense competition among internet companies persisted longer than expected”. Moreover, pullbacks in consumer electronics and auto shares triggered by tariff conflicts further dragged the index down. Artificial intelligence-related stocks, at least, showed resilience during the period.

But since mid-January, growing market skepticism has emerged over whether the massive expenditure on AI by consumer internet firms could ultimately deliver tangible, near-term returns, the brokerage firm added.

As to future estimates of its performance, many analysts remain cautiously optimistic.

While some investors anticipated that enthusiasm surrounding AI would provide support for the sector, others cautioned the Hang Seng Tech Index’s relatively limited exposure to pureplay AI companies could curb its ability to fully benefit from the global AI rally.

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Ng Wing-keung, an investment strategist at the Bank of East Asia, said he expects AI to remain a core investment theme throughout the year, although the market direction might be mainly driven by geopolitical developments.

Rising demand for computing power and cloud services from emerging AI-focused firms like Chinese model developer Zhipu could benefit major players such as Tencent and Alibaba, he added.

However, Guosen Securities said the Hang Seng Tech Index’s structure may limit its ability to fully capture the global AI boom, given that it is still dominated by traditional internet companies, while AI firms such as chipmaker Biren Technology and Zhipu have yet to be included.

“When such companies are added, (they) could become a key factor determining the strength of the rebound in the Hang Seng Tech Index,” the brokerage said.

In addition, as an offshore market, Hong Kong equities are highly sensitive to shifts in global liquidity.

On early Thursday, the US Federal Reserve kept its interest rate unchanged at 3.5 to 3.75 percent, in line with expectations.

Fed Chair Jerome Powell said the possibility that the next move “might be an increase did come up at the meeting as it did at the last meeting”, though he stressed that the “vast majority” of officials do not view that as the most likely outcome.

Contact the writer at irisli@chinadailyhk.com