Chinese investors exit Hong Kong stocks as AI woos money onshore

CHINESE investors are exiting Hong Kong-listed stocks in record numbers, highlighting waning appetite as mainland AI shares broaden their appeal.

Mainland-listed exchange-traded funds focused on Hong Kong equities saw 25 billion yuan (S$4.7 billion) in outflows last week, according to Bloomberg-compiled data. That’s the largest weekly total on record, marking a sharp reversal from last year’s steady inflows.

Investors’ patience is wearing thin after four consecutive months of Hong Kong stocks’ underperformance to onshore peers. Flows are increasingly shifting to mainland-listed semiconductors and other AI-linked shares viewed as more immediate beneficiaries of rapid growth, a trend underscored by Goldman Sachs’s on Wednesday downgrade of H shares.

“We lower H shares to market-weight as the ‘opportunity cost’ for staying overweight has gone up,” Goldman Sachs analysts, including Kinger Lau, wrote in a note. “China is an integral part of the global AI universe.”

Lau and his colleagues cut their earnings-per-share growth forecast for MSCI China Index, home to Hong Kong-listed shares of Internet giants such as Tencent Holdings, Alibaba and Meituan, for 2026 and 2027. They attributed the downgrade to the outsized weight of nine large Internet firms in the index’s earnings profile. “Index construction matters,” they wrote.

Signs that Chinese Internet firms may be reaching an inflection point in AI development are failing to fully restore confidence. Tencent’s H-shares jumped 10 per cent on Tuesday after a report that it’s making progress on launching an AI agent in its flagship WeChat service. But southbound investors saw the rally as a chance to exit, selling HK$2.1 billion (S$343 million) worth of its shares.

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Even as the Hang Seng Tech Index climbed 4.7 per cent on Tuesday, led by Tencent, an ETF from ChinaAMC that tracks the gauge saw record withdrawals of about one billion yuan that same day.

Investors should consider approaching the Hong Kong market through targeted stock ideas for now, Goldman Sachs analysts wrote. “We would prefer to engage the market via specific alpha themes and/or to revisit the beta case later this year when our expected profit growth trajectory takes hold,” they said. BLOOMBERG