Hong Kong stocks struggle as mainland China markets ride AI wave
Chinese investors are shifting from Hong Kong to mainland stocks, driven by AI opportunities and better returns
Signs are omnipresent that mainland Chinese investors are rotating out of Hong Kong stocks and back to the onshore yuan-denominated market, as they recalibrate to add domestic exposure to the fervour surrounding the artificial intelligence buildout.
Onshore investors sold a combined HK$3.6 billion (US$459.5 million) of Hong Kong stocks through the cross-border exchange link programme in May, marking the first monthly outflow in three years, according to data from the city’s exchange.
Mainland-listed exchange-traded funds (ETFs) tracking the Hang Seng Tech Index logged an outflow of 6 billion yuan (US$886.7 million) last week, according to China Galaxy Securities. Meanwhile, the premium that mainland stocks – also known as A shares – command over Hong Kong peers has rebounded from a multi-year low, indicating that yuan-denominated stocks are regaining favour.
Mainland-traded shares had a larger weighting of “pure technology companies, so we are relatively confident that technology will outperform the broader market,” said Pierre Lau, China equity strategist at Citigroup. “Given China’s capacity to implement more accommodative policies, we believe A shares will perform better.”
The US bank is not alone in making such a call. Goldman Sachs on Wednesday lowered its rating on Hong Kong stocks to market-weight, citing a delayed earnings recovery. But it remained overweight on mainland shares, which it said would receive a tailwind from improved earnings momentum, favourable liquidity conditions and more proxies to AI hardware.
Morgan Stanley shared a similar view, arguing in a report last week that the higher concentration of high-end manufacturing and hard-core tech names, alongside more AI-linked initial public offerings and potential state buying, would make mainland stocks a better bet.