Hong Kong stocks kicked off 2026 on a strong note and climbed to a one-and-a-half-month high, as renewed optimism towards China's domestic artificial intelligence sector buoyed the market.

The benchmark Hang Seng Index soared 707 points, or 2.76 percent, to 26,338, hitting its highest level since November 17, while the tech index was up 220 points, or four percent, at 5,736 in its best single-day ⁠rise since September and the China Enterprises Index finished 2.86 percent higher at 9,168.

The artificial intelligence index added 3.7 percent.

The tech gains saw e-commerce giant Alibaba climb HK$6.20, or four percent, to end a day of gains at HK$149 while Baidu, maker of the Ernie chatbot, jumped HK$12.30, or 9.5 percent, to hit HK$143.80 after it said it planned to spin off its artificial intelligence computer chip unit Kunlunxin, which would list shares in Hong Kong early 2027.

The plan is subject to regulatory approvals.

They also came after DeepSeek published a paper this week showcasing a cheaper way to develop AI, reigniting optimism towards Chinese tech capabilities.

Shares of Chinese AI chip designer Shanghai Biren Technology closed up 76 percent at HK$34.46 in their Hong Kong debut, also underscoring investors' optimism towards the sector.

"AI technology narratives will still be the main theme running throughout the year," with DeepSeek continuing to catalyse a revaluation of Chinese assets, analysts at Guolian Minsheng Securities said in a note.

"We believe that 2026, especially the first half, will remain favourable for Hong Kong stocks given ⁠the ongoing weak domestic economic recovery, US Federal Reserve easing cycle, and fresh sector catalysts," they said.

Among other major winners on Friday, chipmaker Hua Hong Semiconductor closed up HK$7, or 9.4 percent, at HK$81.30, hitting its highest since November 20, and extending recent gains after the company announced a deal that would further enhance wafer foundry capacity.

Mainland stock markets are closed for the New Year holiday and ⁠will resume trade on Monday, January 5.

South Korea’s Kospi picked up 2.3 percent to 4,309 as the market's biggest heavyweight, Samsung Electronics, shot up 7.2 percent.

SK Hynix, which makes computer chips used for AI and has partnered with Nvidia, gained four percent. (Reuters)