Rotation Out of AI “Picks & Shovels” Continues
5 Min. Read Time
Key News
Asian equities experienced a second consecutive day of sharp selling in the market's narrow, year-to-date (YTD) outperformers, i.e., the AI "picks & shovels" or US hyperscalers' capex beneficiaries. Investors appear to have squeezed through a narrow exit door, as Korea's SK Hynix fell -12.62% and Samsung fell -8.00%, and the KOSPI fell -7.89%, though remains up by +69.00% so far this year.
Last night's announcement from Meta that it would sell excess cloud capacity was interpreted in Asia as indicating that it has overcapacity. There were reports that SK Hynix and Samsung were looking to pressure their suppliers to mitigate rising chip prices. At the same time, Taiwan's Advanced Semiconductor Engineering will raise prices by 20% due to AI-driven demand. I had thought SK Hynix's mid-July US listing and/or end-of-July US hyperscalers' financial results and guidance would lead to a pullback. As discussed in our webinar yesterday with Hedgeye Risk Management, they've become more defensive on US tech.
Just as yesterday, Hong Kong and Mainland China's AI supply chain subsectors were hit hard, though the broader market held up. Just like yesterday in Hong Kong, semiconductors fell -13%, though the subsector remains up +105% YTD, electrical equipment fell -2.88%, though remains up +24.00%, technology hardware fell -7.69%, though remains up +11%. In China, the move was more extreme, as chips fell -7.85%, though the subsector remains up +73% YTD, electronic components fell -5.77%, though remains up +54% YTD, communication equipment fell -7.74%, though remains up +50% YTD, computer hardware fell -7.68%, though remaions up +35.00% YTD, and energy equipment fell -2.81%, though remains up +30% YTD.
Excluding these subsectors in Hong Kong, it was a good day on strong volume, as internet stocks were up, though just not quite as much as their US-listed counterparts were yesterday. Tencent, which was Hong Kong's most heavily traded stock by value, gained +0.09%, after announcing another 1.15 million share buyback after today's close. Alibaba gained +1.78% following news that it will pay a $600 million fine for failing to regulate pharmaceutical shipments to the US. Mainland investors were net buyers via Southbound Stock Connect after 14 days of net selling, with net buying of $38 million (HKD 301 million) today. The company also bought 4,057,320 ADRs on the NYSE yesterday.
Following NetEase's inclusion in Southbound Stock Connect on July 17th, it will be added to Hang Seng's Connect-related indices on July 20th.
Midea gained +4.12% after stating it may spin off its German industrial robotics acquisition Kuka in an IPO. BYD gained +8.07% in Hong Kong and +3.61% in Mainland China, following yesterday's strong June sales. Battery giant CATL fell -2.99% in Hong Kong and -0.39% in Mainland China, as battery storage has become an AI play. Healthcare also gained, led by CSPC Pharmaceuticals, which gained +8.32% following a partnership deal with AstraZeneca. Mainland China's move was dramatic, wobbling the broader market, as the semiconductor-heavy Science and Technology (STAR) index fell 7.70%.
The China Securities Regulatory Commission (CSRC) approved Unitree's IPO on the Science and Technology (STAR) Market following its March 20th application filing and June 1st approval, as the company seeks to raise RMB 4.20 from investors. Hong Kong's new listings in the first half of 2026 rose 98% year-over-year (YoY) to HKD 87, as IPO subscriptions reached HKD 9.3 trillion.
Ministry of Commerce (MoC) spokesperson He Yadong spoke at a press conference about the feasibility of eliminating tariffs on US agricultural goods. He also noted continued China-EU talks. China's Foreign Minister Wang Yi spoke with US Secretary of State Marco Rubio.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 0.8% |
| Hang Seng Tech | HSTECH Index | -0.4% |
| Hong Kong Turnover | HKTurn Index | 20% |
| Hong Kong Short Sale Turnover | HKSST Index | 31% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -251 |
| China (Shanghai) | SHCOMP Index | -2% |
| China (Shenzhen) | SZCOMP Index | -2.8% |
| China (STAR Board) | Star50 Index | -7.7% |
| Mainland Turnover | .chturn Index | -5.5% |
| Japan | NKY Index | -2.5% |
| India | SENSEX Index | 0.8% |
| Indonesia | JCI Index | 0.9% |
| Malaysia | FBMKLCI Index | 0.3% |
| Pakistan | KSE100 Index | 0.2% |
| Philippines | PCOMP Index | 0.9% |
| South Korea | KOSPI Index | -7.9% |
| Taiwan | TWSE Index | -0.6% |
| Thailand | SET Index | 0.3% |
| Singapore | STI Index | 1.1% |
| Australia | AS51 Index | 0% |
| Vietnam | VNINDEX Index | -0.0005 |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 136 | 149 |
| Advancing Stocks | 354 | 2342 |
| Declining Stocks | 161 | 2655 |
| Outperforming Factors | Quality, Value, Dividend | Low Volatility, Value, Dividend Yield |
| Underperforming Factors | Momentum, Large Caps | Momentum, Liquidity, Growth |
| Top Sectors | Healthcare, Real Estate, Discretionary | Communication, Discretionary, Energy |
| Bottom Sectors | Tech, Industrials | Tech, Real Estate, Industrials |
| Top Subsectors | Paper/Packaging, Auto, Pharmaceuticals | Precious Metals, Construction Machinery, Textile/Garment |
| Bottom Subsectors | Semis, Tech Hardware, Software | Semis, Communication Equipment, Computer Hardware |
| Southbound Connect Buys | Alibaba, YOFC (Small) | |
| Southbound Connect Sells | Hua Hong Semi, KB Laminates (Large), Kingboard, SMIC, Tencent (Moderate) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | 0.96 |
| Communication Services | 11 | 0.09 |
| Consumer Discretionary | 28 | 2.5 |
| Consumer Staples | 13 | 2.02 |
| Energy | 6 | 1.81 |
| Financials | 25 | 0.9 |
| Health Care | 16 | 4.76 |
| Industrials | 22 | -0.18 |
| Information Technology | 12 | -4.4 |
| Materials | 14 | 1.64 |
| Real Estate | 7 | 3.41 |
| Utilities | 11 | 0.55 |
| Mainland China Listed | 386 | -2.96 |
| Communication Services | 8 | 1.3 |
| Consumer Discretionary | 26 | 0.76 |
| Consumer Staples | 19 | 0.2 |
| Energy | 12 | 0.43 |
| Financials | 64 | -0.54 |
| Health Care | 31 | 0.4 |
| Industrials | 58 | -1.27 |
| Information Technology | 95 | -7.62 |
| Materials | 52 | 0.23 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 0.1 |
| Alibaba HK | 9988 HK Equity | 1.8 |
| JD.com HK | 9618 HK Equity | 3.6 |
| NetEase HK | 9999 HK Equity | -1.2 |
| Yum China HK | 9987 HK Equity | 1.9 |
| Baozun HK | 9991 HK Equity | 1.7 |
| Baidu HK | 9888 HK Equity | 0.4 |
| Autohome HK | 2518 HK Equity | -0.9 |
| Bilibili HK | 9626 HK Equity | 2.1 |
| Trip.com HK | 9961 HK Equity | 1.9 |
| EDU HK | 9901 HK Equity | 1.2 |
| Xpeng HK | 9868 HK Equity | 2.3 |
| Weibo HK | 9898 HK Equity | 1.8 |
| Li Auto HK | 2015 HK Equity | 1.6 |
| Nio Auto HK | 9866 HK Equity | -3 |
| Zhihu HK | 2390 HK Equity | 0 |
| KE HK | 2423 HK Equity | 3.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | 3.2 |
| Meituan HK | 3690 HK Equity | 3.4 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | 0.1 |
| SEMICONDUCTOR MANUFACTURI-H | -10.1 |
| ALIBABA GROUP HOLDING LTD | 1.8 |
| HUA HONG GRACE SEMICONDUCTOR | -13.5 |
| YANGTZE OPTICAL FIBRE AND-H | -22.4 |
| KINGBOARD LAMINATES HLDG LTD | -15.5 |
| XIAOMI CORP-CLASS B | 4.4 |
| MEITUAN-CLASS B | 3.4 |
| KINGBOARD HOLDINGS LTD | -13.2 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | -16.6 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| BOE TECHNOLOGY GROUP CO LT-A | 3.8 |
| ZHONGJI INNOLIGHT CO LTD-A | -6.6 |
| EOPTOLINK TECHNOLOGY INC L-A | -11.6 |
| GIGADEVICE SEMICONDUCTO-CL A | -10 |
| MONTAGE TECHNOLOGY CO LTD-A | -14.8 |
| DO-FLUORIDE NEW MATERIALS -A | -0.8 |
| CAMBRICON TECHNOLOGIES-A | -7.6 |
| SUZHOU DONGSHAN PRECISION-A | -10 |
| JCET GROUP CO LTD-A | -10 |
| ADVANCED MICRO-FABRICATION-A | -11.5 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.79 versus 6.78 yesterday
- CNY per EUR 7.75 versus 7.74 yesterday
- Yield on 10-Year Government Bond 1.74% versus 1.74% yesterday
- Yield on 10-Year China Development Bank Bond 1.82% versus 1.82% yesterday
- Copper Price -0.16%
- Steel Price +0.03%
