AI Supply Chain Pain May Equal Mean Reversion Gains

Key News

Asia’s AI picks-and-shovels and supply chain stocks had another downdraft, except for Taiwan, which managed a small gain, while Southeast Asia, except for Vietnam, had a good day. 

Mainland China and Hong Kong felt Korea’s meltdown, with SK Hynix down -16.95% and Samsung down -10%. Korea's drop led to another large round of profit taking in China’s AI picks-and-shovels and supply chain companies, as Hong Kong semiconductor and technology hardware stocks were down, and in Mainland China, semiconductor, semiconductor equipment and materials, technology hardware, electronic equipment, and communication equipment stocks were down.

One major piece of news that appeared to have come after the market’s close and was a non-factor in today’s trading was the State Council’s approval of the 15th Five-Year Plan for Expanding Consumption, with the goal of raising retail sales to RMB 60T by 2030. The stated objective is to “expand domestic demand and vigorously boost consumption” with areas of focus including:

• “Pension consumption”/”silver economy”
• “Develop cultural and tourism consumption”
• Sports consumption
• Healthy food consumption
• Winter tourism
• Upgrade housing/affordable housing
• Auto consumption w/emphasis on hybrid/EV
• Digital consumption supported by AI

So, the highest echelon of China’s government has pushed this out as a directive with underlying agencies now tasked with implementing the policy. The underlying agencies should provide some transparency on supportive policies and potential subsidies. Could this push get further push at the end of the July Politburo meeting? Maybe, which, if memory serves me right, could resemble the rocket-fuel reaction of September 2024's real estate policy support.

Hong Kong gave up early gains as Korea’s weakness weighed on investor risk sentiment, as value sectors outperformed, led by banks, energy, telecommunication, and internet stocks on light volumes. Alibaba gained +0.45% with $74 million (HK $583mm) of net buying via the Southbound Stock Connect, JD gained +2.72%, Trip.com gained +1.52%, though Tencent fell by -0.56%.

Knowledge Atlas gained +0.30% and was Hong Kong’s most heavily traded stock by value, on an analyst upgrade and very strong buying via the Southbound Stock Connect. However, AI LLM peer Minimax fell by -17.13% after its private placement and an analyst downgrade. CATL gained +2.73% and bucked the AI downdraft on an analyst upgrade after its recent downdraft. Several AI supply chain plays were hit hard after their lockup expiration, including Kingboard Laminates (-18.71%), YOFC (-12.58%), and Gigadevice (-15.29%).

Mainland investors bought the dip in Hong Kong as the Hong Kong ETF Tracker saw a large net buy. Similar in Mainland China, as value sectors outperformed, though the number of advancers versus decliners was not good. There was no sign of the National Team, which has plenty of dry powder.

The AI supply chain is seeing a vicious turn, though fundamentals remain strong as Mainland companies report projected 1^st half profits. After the close, Hengton Optic-Electric (600487 CH), which fell by -10%, announced that its 1st-half profit will be between RMB 3B and RMB 3.5B, an increase YoY of 87% to 121%.

The June and Q2 economic data dump kicks in over the next two days, with trade, GDP, industrial production, and retail sales coming.

The 2026 World Artificial Intelligence Conference (WAIC) begins on July 17th in Shanghai, with President Xi delivering a keynote address. 1,100 companies are attending, while Turing Award winner Andrew Yao will also speak.

Mainland media continues to congratulate itself on the 101 IPOs YTD as of Friday, with 29 of those coming from Mainland-listed companies cross-listing in Hong Kong. It is frustrating: as more supply from IPOs comes in, demand stays constant across China's markets, leading to lower stock prices.

Last Night's Performance

Country / Index	Ticker	1-Day Change
China (Hong Kong)	HSI Index	0.2%
Hang Seng Tech	HSTECH Index	-1%
Hong Kong Turnover	HKTurn Index	-8.9%
Hong Kong Short Sale Turnover	HKSST Index	19.3%
Short Turnover as a % of Hong Kong Turnover	N/A	0.2
Southbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	1154.33
China (Shanghai)	SHCOMP Index	-2.1%
China (Shenzhen)	SZCOMP Index	-4%
China (STAR Board)	Star50 Index	-3.4%
Mainland Turnover	.chturn Index	-16.8%
Japan	NKY Index	-1.9%
India	SENSEX Index	0.1%
Indonesia	JCI Index	1.9%
Malaysia	FBMKLCI Index	0.4%
Pakistan	KSE100 Index	-1.3%
Philippines	PCOMP Index	-0.3%
South Korea	KOSPI Index	-8.9%
Taiwan	TWSE Index	0.1%
Thailand	SET Index	0.4%
Singapore	STI Index	0%
Australia	AS51 Index	0%
Vietnam	VNINDEX Index	-0.0005

Indicator	Hong Kong	Mainland China
Today's Volume % of 1-Year Average	113%	119%
Advancing Stocks	200	743
Declining Stocks	308	4358
Outperforming Factors	Low Volatility, Dividend Yield	Low Volatility, Dividend Yield, Value
Underperforming Factors	Growth, Liquidity, Momentum	Momentum, Liquidity, Growth
Top Sectors	Real Estate, Energy, Financials	Financials, Energy, Utilities
Bottom Sectors	Tech, Materials, Healthcare	Tech, Real Estate, Materials
Top Subsectors	Petroleum/Petrochemical, Household/Personal Products, Electrical Equipment	Oil/Gas, Banking, Coal
Bottom Subsectors	Semis, Tech Hardware, Environmental Production	Aerospace/Military, Trade, Electronic Components
Southbound Connect Buys	Knowledge Atlas, HK Tracker ETF (Very Large), Alibaba, SMIC (Moderate)	N/A
Southbound Connect Sells	KB Laminates (Very Large), Hua Hong Semi, Kingboard, YOFC (Large), Tencent (Small)	N/A

MSCI China All Shares Index	# of Stocks	Average 1-Day Change (%)
Hong Kong Listed	165	-0.25
Communication Services	11	-0.52
Consumer Discretionary	28	0.18
Consumer Staples	13	0.34
Energy	6	1.51
Financials	25	0.47
Health Care	16	-0.59
Industrials	22	0.05
Information Technology	12	-3.82
Materials	14	-0.9
Real Estate	7	1.76
Utilities	11	0.27
Mainland China Listed	386	-2.24
Communication Services	8	-2.9
Consumer Discretionary	26	-2.49
Consumer Staples	19	0.18
Energy	12	0.67
Financials	64	0.74
Health Care	31	-0.6
Industrials	58	-1.68
Information Technology	95	-4.62
Materials	52	-3.35

US & Hong Kong Dually Listed	Ticker	1-Day Change (%)
Tencent HK	700 HK Equity	-0.6
Alibaba HK	9988 HK Equity	0.5
JD.com HK	9618 HK Equity	2.7
NetEase HK	9999 HK Equity	0.1
Yum China HK	9987 HK Equity	3.3
Baozun HK	9991 HK Equity	-1.1
Baidu HK	9888 HK Equity	-1
Autohome HK	2518 HK Equity	-2.1
Bilibili HK	9626 HK Equity	-2.2
Trip.com HK	9961 HK Equity	1.5
EDU HK	9901 HK Equity	0.8
Xpeng HK	9868 HK Equity	-0.9
Weibo HK	9898 HK Equity	-0.6
Li Auto HK	2015 HK Equity	-0.5
Nio Auto HK	9866 HK Equity	-3.3
Zhihu HK	2390 HK Equity	1.8
KE HK	2423 HK Equity	2.9
Tencent Music Entertainment HK	1698 HK Equity	-1.3
Meituan HK	3690 HK Equity	-1

Hong Kong's Most Heavily Traded by Value	1-Day Change (%)
KNOWLEDGE ATLAS TECHNOLOGY-H	0.3
SEMICONDUCTOR MANUFACTURI-H	-1.6
ALIBABA GROUP HOLDING LTD	0.5
TENCENT HOLDINGS LTD	-0.6
HUA HONG GRACE SEMICONDUCTOR	-7.1
KINGBOARD LAMINATES HLDG LTD	-18.7
YANGTZE OPTICAL FIBRE AND-H	-12.6
GIGADEVICE SEMICONDUCTOR I-H	-15.3
XIAOMI CORP-CLASS B	0
KINGBOARD HOLDINGS LTD	-19.2

Shanghai and Shenzhen's Most Heavily Traded by Value	1-Day Change (%)
ZHONGJI INNOLIGHT CO LTD-A	1.3
GIGADEVICE SEMICONDUCTO-CL A	-10
JCET GROUP CO LTD-A	-2
CAMBRICON TECHNOLOGIES-A	-0.7
SUZHOU DONGSHAN PRECISION-A	-2.3
BOE TECHNOLOGY GROUP CO LT-A	-10
EOPTOLINK TECHNOLOGY INC L-A	-2
TIANSHUI HUATIAN TECHNOLOG-A	-4.7
PIOTECH INC-A	1.6
UNISPLENDOUR CORP LTD-A	0

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 6.77 versus 6.78 Friday
• CNY per EUR 7.75 versus 7.74 Friday
• Yield on 10-Year Government Bond 1.74% versus 1.74% Friday
• Yield on 10-Year China Development Bank Bond 1.82% versus 1.82% Friday
• Copper Price -0.50%
• Steel Price -0.62%