Unlock the Editor’s Digest at no cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Hong Kong shares have outperformed their mainland friends by the biggest margin in practically twenty years, as cash pours in from China as a consequence of worries concerning the home financial system and enthusiasm for the territory’s expertise shares.
The benchmark Cling 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 file excessive ranges.
“The vast majority of the sturdy outperformance this 12 months from Hong Kong has been pushed by southbound flows [from the mainland],” mentioned James Wang, head of China fairness technique at UBS.
“Plenty of that has been pushed by the AI commerce,” he added, pointing to the upper proportion of AI shares in Hong Kong than the mainland.
Hong Kong’s outperformance additionally “stems from elementary variations in market composition”, mentioned Wei Li, head of multi-asset investments for China at BNP Paribas.
“The Cling Seng index’s heavy weighting in the direction of globally liquid sectors — corresponding to expertise and finance — has allowed it to capitalise on the Federal Reserve’s dovish pivot and renewed urge for food for Chinese language tech shares.”
Chinese language expertise corporations corresponding to Tencent and Alibaba are listed in Hong Kong and the US however not on the mainland. Alibaba first grew to become out there 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 technology companies in February was additionally seen as optimistic for each mainland and Hong Kong shares, however significantly for the latter.
“Traders really feel the federal government is giving the inexperienced mild for the tech sector to develop once more,” 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 typically been concern concerning the home financial system in China being weak,” mentioned Andrew Tilton, chief Asia-Pacific economist and head of EM financial analysis at Goldman Sachs.
Hong Kong is more likely to profit from any strikes out of US equities into different markets and from additional Fed price cuts within the second half of the 12 months, mentioned JPMorgan’s Hui.
“Hong Kong is gathering capital each from Chinese language buyers and worldwide buyers” 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, corresponding to hedge funds, relatively than longer-term market contributors corresponding to pension funds, in accordance with UBS’s Wang.
“I wouldn’t say there’s an enormous inflow of long-only cash coming again into the China fairness market simply but,” he added. “Traders have been burned for fairly a very long time in China.”
