Hong Kong stocks struggle as mainland China markets ride AI wave

Chinese investors are rotating out of Hong Kong-listed stocks and into mainland A-shares, driven by the AI boom and stronger returns. In May, mainland investors sold HK$3.6 billion (US$459.5 million) worth of Hong Kong stocks through cross-border exchange links, marking the first monthly outflow in three years, according to Hong Kong’s exchange. Meanwhile, mainland-listed ETFs tracking the Hang Seng Tech Index saw outflows of 6 billion yuan (US$886.7 million) last week, while A-shares regained premiums over Hong Kong peers. The shift reflects growing confidence in mainland tech stocks, particularly AI-focused companies. Recent listings like Moore Threads Technology and MetaX Integrated Circuits, both AI chipmakers, have drawn investor interest. In contrast, Hong Kong-listed firms such as food delivery giant Meituan have faced profit declines due to price wars. Analysts predict mainland stocks will outperform. Pierre Lau, China equity strategist at Citigroup, noted that mainland shares have higher exposure to pure tech firms and expect AI-driven growth. Goldman Sachs downgraded Hong Kong stocks to market-weight but maintained an overweight stance on A-shares, citing improved earnings and liquidity. Morgan Stanley echoed this, highlighting mainland China’s stronger tech sector, more AI IPOs, and potential state-backed buying. The trend underscores a broader rotation toward mainland markets, where policy support and AI advancements are expected to drive performance. Hong Kong’s tech sector, meanwhile, faces delays in earnings recovery, according to Goldman Sachs.