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Hong Kong shares have outperformed their mainland friends by the most important margin in almost 20 years, as cash pours in from China resulting from worries in regards to the home financial system and enthusiasm for the territory’s expertise shares.
The benchmark Grasp Seng index is up 16.4 per cent this 12 months in contrast with a 1.2 per cent decline in mainland China’s CSI 300 index — the most important outperformance 12 months to this point since 2008.
The rally has been boosted by the rise of DeepSeek, the Chinese language start-up that claims synthetic intelligence advances utilizing far much less computing energy than US rivals, which has inspired investor urge for food for Hong Kong-listed expertise shares.
The territory’s shares, which plummeted extra sharply than mainland equities after US President Donald Trump’s “liberation day” tariff announcement in April, have additionally been helped by easing tensions within the US/China commerce battle.
The rally comes as cash from mainland China flows into Hong Kong at document excessive ranges.
“The majority of the strong outperformance this year from Hong Kong has been driven by southbound flows [from the mainland],” mentioned James Wang, head of China fairness technique at UBS.
“A lot of that has been driven by the AI trade,” he added, pointing to the upper proportion of AI shares in Hong Kong than the mainland.
Hong Kong’s outperformance additionally “stems from fundamental differences in market composition”, mentioned Wei Li, head of multi-asset investments for China at BNP Paribas.
“The Hang Seng index’s heavy weighting towards globally liquid sectors — such as technology and finance — has allowed it to capitalise on the Federal Reserve’s dovish pivot and renewed appetite for Chinese tech stocks.”
Chinese language expertise corporations akin to Tencent and Alibaba are listed in Hong Kong and the US however not on the mainland. Alibaba first turned obtainable to mainland buyers in September after the corporate upgraded its itemizing in Hong Kong.
A gathering between Chinese language President Xi Jinping and the nation’s expertise corporations in February was additionally seen as constructive for each mainland and Hong Kong shares, however significantly for the latter.
“Investors feel the government is giving the green light for the tech sector to grow again,” mentioned Tai Hui, chief Asia market strategist at JPMorgan Asset Administration.
China’s financial system has been hit arduous by the collapse within the property market and the commerce battle with the US, which has helped Hong Kong’s outperformance.
“There has generally been concern about the domestic economy in China being weak,” mentioned Andrew Tilton, chief Asia-Pacific economist and head of EM financial analysis at Goldman Sachs.
Hong Kong is prone to profit from any strikes out of US equities into different markets and from additional Fed charge cuts within the second half of the 12 months, mentioned JPMorgan’s Hui.
“Hong Kong is gathering capital both from Chinese investors and international investors” as it’s simpler for abroad buyers to purchase equities within the metropolis than in mainland China, Hui added.
Worldwide cash flowing into Hong Kong seems to be from shorter-term buyers, akin to hedge funds, moderately than longer-term market individuals akin to pension funds, in accordance with UBS’s Wang.
“I wouldn’t say there’s a huge influx of long-only money coming back into the China equity market just yet,” he added. “Investors have been burned for quite a long time in China.”
