AI Rebound as Data Center Build Out Announced
6 Min. Read Time
Key News
Asian equities rebounded, led by the AI picks-and-shovels that had been kicked to the curb, with South Korea's KOSPI +8.18%, while unrelated to today's tech bounce, Indonesia rebounded +7.57%.
After the Hong Kong close, Bloomberg is reporting that the Chinese government will spend $295B (RMB 2T) over the next five years to build AI data centers using domestic technology. There are obvious implications for domestic semiconductor companies, as well as less obvious ones for cloud providers, battery storage, and clean tech companies. I do not see this story verified in China, though the idea was proposed earlier this year with a monetary figure attached.
Now that I have your attention, one item you won't read about elsewhere is that Mainland Chinese-listed ETFs had strong inflows totaling $4.335B of net buying, with 480 ETFs reporting inflows, i.e., very broad, as the top 12 ETFs had $2.574B of net buying. Yesterday, there was $678mm of net buying following the massive outflows of -$217B YTD as the National Team sold into strength earlier this year. Is that powder coming back into the market? The ETFs favored by the National Team saw inflows, but below-average volumes, indicating local investors are simply reallocating to stocks (bank deposit and bond yields are low!).
A factor in Hong Kong's weakness was the US Department of Defense updating "Notice of Chinese military companies operating in the United States", which had been accidentally published and subsequently pulled before President Trump's China trip, including several high-profile companies due to their "affiliation" with the Ministry of Industry and Information Technology (MIIT). The list has no investment implications as it bans the DoD from procuring products from the companies, though the accusations weighed on Hong Kong and the stocks. Alibaba -1.43% told Bloomberg, "Alibaba is not a Chinese military company nor part of any military-civil fusion strategy" and "We will take all available legal action against attempts to misrepresent our company". Baidu +0.52% said, "It is neither a defense enterprise nor involved in civil-military fusion." Car companies Nio +0.83% and BYD +0.4% were on the list, which is laughable. WuXi AppTec -3.71%, told Bloomberg it has no affiliation with the Chinese military. Arguably, the list highlights strong performers.
Can you imagine President Trump's reaction if a foreign country did something that sent US stocks lower? That happened today in Hong Kong, but there was basically no reaction from the Chinese government, including the Ministry of Foreign Affairs, when asked about it during their daily press conference. Nor was there any national pride in defending Hong Kong stocks against Mainland investors via Southbound Stock Connect. You would think you'd want to make the companies on the list great stock performers, though that didn't happen.
Today's price action was the inverse of yesterday's, as Hong Kong and Chinese AI sub-sectors rebounded, led by tech hardware and semis in Hong Kong, and semis, semis materials/equipment, tech hardware, including electronic equipment and communications equipment, in China. CATL rebounded following yesterday's AI-induced fall, +1.65% in China and +1.17% in Hong Kong. Mainland investors sold their large Hong Kong Tracker ETF position with a net sale of -$1.457B (HK $11.419B), though several stocks were net buys. Hong Kong was far more mixed, with poor breadth, as oil/gas, transportation, and real estate fell.
Mainland China held up a bit better, with advancers outpacing decliners, as oil/gas and coal underperformed. Semis heavy Science and Technology (STAR) Board +4.17%, while the growth heavy Shenzhen +2.44%, versus the value heavy Shanghai's 1.28%. The Ministry of Industry and Information Technology and State-owned Assets Supervision and Administration Commission announced the "2026 Special Action for On-site Training of Humanoid Robots and Embodied Intelligence."
May trade data was strong with exports +19.4% versus expectations of 15% and April's 14.1%, imports +27.4% versus expectations of 26% and April's 25.3%, while the trade balance was $105B versus the expectations of $92B and May's $84B. The trade data highlights that Chinese companies are part of the AI supply chain, with Bloomberg reporting semiconductor exports +111% YoY to $36B!
Bloomberg's article titled "AI Supercycle Propels China's Trade With 111% Boom in Chip Sales" highlights what we've been trying to point out to investors, as Mainland-listed semis and tech hardware stocks have done very well. Mainland investors have recognized this, as evidenced by the strong outperformance of these Mainland sub-sectors and the outperformance of Mainland indices. Remember, Hong Kong is the primary definition of China for foreign/global investors, which is why this trend is not widely known.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -0.4% |
| Hang Seng Tech | HSTECH Index | 0.3% |
| Hong Kong Turnover | HKTurn Index | -15.1% |
| Hong Kong Short Sale Turnover | HKSST Index | 57.3% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 19.3% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -1100.10 |
| China (Shanghai) | SHCOMP Index | 1.3% |
| China (Shenzhen) | SZCOMP Index | 2.4% |
| China (STAR Board) | Star50 Index | 4.2% |
| Mainland Turnover | .chturn Index | -5.5% |
| Japan | NKY Index | 2.2% |
| India | SENSEX Index | 0.5% |
| Indonesia | JCI Index | 7.6% |
| Malaysia | FBMKLCI Index | -0.2% |
| Pakistan | KSE100 Index | 0.8% |
| Philippines | PCOMP Index | 1.1% |
| South Korea | KOSPI Index | 8.2% |
| Taiwan | TWSE Index | 2.8% |
| Thailand | SET Index | 1.4% |
| Singapore | STI Index | 1.2% |
| Australia | AS51 Index | -0.2% |
| Vietnam | VNINDEX Index | 0.1% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 124 | 117 |
| Advancing Stocks | 194 | 2878 |
| Declining Stocks | 313 | 2105 |
| Outperforming Factors | EPS Revision, Liquidity, Momentum | Momentum, Liquidity, Growth |
| Underperforming Factors | Growth, Low Volatility, Quality | Low Volatility, Dividend Yield |
| Top Sectors | Tech, Communication, Utilities | Tech, Materials, Industrials |
| Bottom Sectors | Energy, Healthcare, Discretionary | Energy, Staples, Discretionary |
| Top Subsectors | Tech Hardware, Paper/Packaging, Semis | Communication Equipment, Semis, Electrical Components |
| Bottom Subsectors | Petroleum/Petrochemical, Coal, Consumer Durables/Apparel | Oil/Gas, Coal, Daily Chemical |
| Southbound Connect Buys | KB Laminates, Kingboard, SMIC, Tencent (Large), Hua Hong Semi, YOFC (Moderate) | |
| Southbound Connect Sells | HK Tracker ETF (Massive), HS Tech ETF, HS China Enterprise ETF (Very Large) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | 0.1 |
| Communication Services | 11 | 1.21 |
| Consumer Discretionary | 28 | -0.57 |
| Consumer Staples | 13 | 0.35 |
| Energy | 6 | -2.61 |
| Financials | 25 | -0.12 |
| Health Care | 16 | -1.34 |
| Industrials | 22 | -0.21 |
| Information Technology | 12 | 1.84 |
| Materials | 14 | 0.03 |
| Real Estate | 7 | -0.05 |
| Utilities | 11 | 0.92 |
| Mainland China Listed | 386 | 2.36 |
| Communication Services | 8 | 0.74 |
| Consumer Discretionary | 26 | -0.07 |
| Consumer Staples | 19 | -0.3 |
| Energy | 12 | -1.96 |
| Financials | 64 | 0.75 |
| Health Care | 31 | 0.17 |
| Industrials | 58 | 1.77 |
| Information Technology | 95 | 5.27 |
| Materials | 52 | 2.72 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 1.5 |
| Alibaba HK | 9988 HK Equity | -1.4 |
| JD.com HK | 9618 HK Equity | 0.4 |
| NetEase HK | 9999 HK Equity | -0.2 |
| Yum China HK | 9987 HK Equity | -0.6 |
| Baozun HK | 9991 HK Equity | 5.4 |
| Baidu HK | 9888 HK Equity | 0.5 |
| Autohome HK | 2518 HK Equity | 5.8 |
| Bilibili HK | 9626 HK Equity | -2.9 |
| Trip.com HK | 9961 HK Equity | -1 |
| EDU HK | 9901 HK Equity | -3.2 |
| Xpeng HK | 9868 HK Equity | -1.1 |
| Weibo HK | 9898 HK Equity | 0.1 |
| Li Auto HK | 2015 HK Equity | -2.6 |
| Nio Auto HK | 9866 HK Equity | 0.8 |
| Zhihu HK | 2390 HK Equity | 1.5 |
| KE HK | 2423 HK Equity | 0.1 |
| Tencent Music Entertainment HK | 1698 HK Equity | 0.1 |
| Meituan HK | 3690 HK Equity | 1.2 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | 1.5 |
| ALIBABA GROUP HOLDING LTD | -1.4 |
| SEMICONDUCTOR MANUFACTURI-H | -4.1 |
| YANGTZE OPTICAL FIBRE AND-H | -2.1 |
| AIA GROUP LTD | -1.8 |
| KINGBOARD HOLDINGS LTD | 25.2 |
| HUA HONG GRACE SEMICONDUCTOR | -5.6 |
| KINGBOARD LAMINATES HLDG LTD | 12.1 |
| LENOVO GROUP LTD | -1.3 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | 1.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | -2.1 |
| EOPTOLINK TECHNOLOGY INC L-A | -3.1 |
| BOE TECHNOLOGY GROUP CO LT-A | -2.2 |
| JIANGSU ZHONGTIAN TECHNOLO-A | 7.5 |
| GIGADEVICE SEMICONDUCTO-CL A | -2.9 |
| HENGTONG OPTIC-ELECTRIC CO-A | -0.7 |
| WUS PRINTED CIRCUIT KUNSHA-A | 2.8 |
| VICTORY GIANT TECHNOLOGY -A | -7.1 |
| SUZHOU DONGSHAN PRECISION-A | -3.8 |
| SUZHOU TFC OPTICAL COMMUNI-A | -7 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.77 versus 6.78 yesterday
- CNY per EUR 7.83 versus 7.82 yesterday
- Yield on 10-Year Government Bond 1.74% versus 1.73% yesterday
- Yield on 10-Year China Development Bank Bond 1.80% versus 1.79% yesterday
- Copper Price +0.33%
- Steel Price -0.41%
