First Signs of Rotation Into Hong Kong Software & Internet
6 Min. Read Time
Key News
Asian equities were higher, led by Hong Kong, Mainland China, Thailand, and the Philippines, while Indonesia underperformed.
Investment strategists have been highlighting the broadening of the US equity market as investors rotate out of the US' "Magnificent 7", leading to US small caps to outperform large caps, US chips to outperform broad US tech, and the equally-weighted S&P 500 to outperform the market cap-weighted S&P 500.
In Mainland China and Hong Kong, the AI "picks & shovels" of technology hardware, semiconductors, and electronic equipment have been the only game in town and pretty much the only thing working, at the expense of virtually everything else. That did not happen today. Not just because Tencent gained +2.04% and Alibaba gained +3.91% but also because investors appear to have connected the dots on the consequences of Microsoft and Apple raising prices on the Xbox and iPads and other non-iPhone electronics due to high semi prices. Both companies had strong call option trading volumes as well, along with several Hong Kong indexes. One day does not make a trend, though the downdraft could have been simple profit-taking, though we will see whether a long-awaited rotation occurs in China, like we’ve seen in the US. Fingers crossed!
Semiconductor and materials names had a strong day as the Mainland media noted that 20 global chip companies have announced price hikes due to AI data center demand filling their order book as wafer prices and the cost of raw materials rise. SK Hynix and Samsung announced a KRW 1 trillion ($520 billion) investment plan to be implemented over the next ten years, though obviously that supply will take a long time to come online.
The Financial Times is reporting that Apple is lobbying the Trump Administration for an exemption to buy chips from China’s CXMT (ChangXin Memory). CXMT has applied for a Mainland China IPO on the Science and Technology (STAR) Board of the Shanghai Stock Exchange. The company represents a viable alternative to the Korean chip makers when it comes to memory chips, in particular. CXMT received a $10 billion order from Tencent, as I’m sure others are looking for cheaper alternatives to Samsung, SK Hynix, and Micron.
Baidu gained +5.62% after reports that the Hong Kong IPO of its Kunlunxin chip designer could value the company at $50 billion, versus Baidu’s market cap of only $36 billion! NetEase +6.35% after announcing plans to convert their Hong Kong secondary offering to a primary listing, which would pave the way for Mainland investors to buy via Southbound Stock Connect. Kuaishou gained +2.02% on reports that the company is restructuring its Kling AI unit in advance of potential spin off or IPO of the unit.
Healthcare was a top performer in Hong Kong, where it gained +6.48%, and in Mainland China, where it gained +7.11%, after the National Healthcare Security Administration (NHSA) approved 500 drugs for 2026 insurance coverage, in addition to recent biotech drug successes.
Household appliance makers had a strong day. Midea gained +4.6% on demand stemming from Europe’s heatwave.
We have noted Hong Kong’s elevated short interest, which could explain an element of today’s price action, as shorts likely faced some headwinds. Mainland investors were net sellers of Hong Kong-listed stocks and ETFs via Southbound Stock Connect today, as the Hong Kong Tracker ETF was a massive net sell, while Alibaba was only a moderate net sell.
Semiconductor companies led the Mainland's Science and Technology (STAR) Board higher by +4.61%, though technology hardware weighed on the Shenzhen, whose representative index fell -0.12%.
Industrial Profits for the first six months of the year increased 18.8% versus the same period last year, which compares favorably to the 18.2% year-over-year (YoY) increase for the January-April period. Industrial Profits for the month of May increased YoY 21.1% YoY, up from April’s 24.7%.
China and Japan’s tit for tat continues to escalate as China’s Ministry of Commerce (MoC) today added 20 Japanese companies to an export control list.
May's “official” purchasing managers' indexes (PMIs) are expected to be released tonight.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 1.6% |
| Hang Seng Tech | HSTECH Index | 3.2% |
| Hong Kong Turnover | HKTurn Index | -7.8% |
| Hong Kong Short Sale Turnover | HKSST Index | -1.9% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 18.6% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -319.77 |
| China (Shanghai) | SHCOMP Index | 1.2% |
| China (Shenzhen) | SZCOMP Index | -0.1% |
| China (STAR Board) | Star50 Index | 4.6% |
| Mainland Turnover | .chturn Index | -1% |
| Japan | NKY Index | 0.2% |
| India | SENSEX Index | -0.5% |
| Indonesia | JCI Index | -1.3% |
| Malaysia | FBMKLCI Index | -0.1% |
| Pakistan | KSE100 Index | -0.7% |
| Philippines | PCOMP Index | 1% |
| South Korea | KOSPI Index | -0.2% |
| Taiwan | TWSE Index | 1% |
| Thailand | SET Index | 2.3% |
| Singapore | STI Index | 0.3% |
| Australia | AS51 Index | 0.7% |
| Vietnam | VNINDEX Index | -0.9% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 100 | 151 |
| Advancing Stocks | 91 | 828 |
| Declining Stocks | 430 | 4256 |
| Outperforming Factors | None | None |
| Underperforming Factors | Liquidity, Growth, Momentum | Liquidity, Large Caps, Momentum |
| Top Sectors | None | Utilities |
| Bottom Sectors | Tech, Discretionary, Materials | Industrials, Tech, Materials |
| Top Subsectors | Consumer Durables/Apparel, Textiles/Apparel, Household Appliances | Building Materials, Motorcycle, Packaging |
| Bottom Subsectors | Semis, Electrical Equipment, Consumer Discretionary Distribution | Communication Equipment, Internet, Diversified Financials |
| Southbound Connect Buys | KB Laminates (Very Large), YOFC (Large), Knowledge Atlas (Moderate), Hua Hong Semi, Kingboard (Small) | N/A |
| Southbound Connect Sells | Alibaba (Very Large), SMIC,Tencent (Small) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -2.39 |
| Communication Services | 11 | -1.96 |
| Consumer Discretionary | 28 | -3.82 |
| Consumer Staples | 13 | -1.31 |
| Energy | 6 | -0.45 |
| Financials | 25 | -1.25 |
| Health Care | 16 | -0.67 |
| Industrials | 22 | -1.72 |
| Information Technology | 12 | -5 |
| Materials | 14 | -2.34 |
| Real Estate | 7 | -1.63 |
| Utilities | 11 | -1.5 |
| Mainland China Listed | 386 | -2.9 |
| Communication Services | 8 | -2.33 |
| Consumer Discretionary | 26 | -2.83 |
| Consumer Staples | 19 | -1.12 |
| Energy | 12 | -1.99 |
| Financials | 64 | -2.21 |
| Health Care | 31 | -2.43 |
| Industrials | 58 | -3.7 |
| Information Technology | 95 | -3.56 |
| Materials | 52 | -3.11 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 2 |
| Alibaba HK | 9988 HK Equity | 3.9 |
| JD.com HK | 9618 HK Equity | 3.1 |
| NetEase HK | 9999 HK Equity | 6.3 |
| Yum China HK | 9987 HK Equity | 1.5 |
| Baozun HK | 9991 HK Equity | 6 |
| Baidu HK | 9888 HK Equity | 5.6 |
| Autohome HK | 2518 HK Equity | 1.3 |
| Bilibili HK | 9626 HK Equity | 5.6 |
| Trip.com HK | 9961 HK Equity | 5.9 |
| EDU HK | 9901 HK Equity | 5.2 |
| Xpeng HK | 9868 HK Equity | 4 |
| Weibo HK | 9898 HK Equity | 2.3 |
| Li Auto HK | 2015 HK Equity | -0.8 |
| Nio Auto HK | 9866 HK Equity | 3 |
| Zhihu HK | 2390 HK Equity | 7.5 |
| KE HK | 2423 HK Equity | 4.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | 4.5 |
| Meituan HK | 3690 HK Equity | 5.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | 3.9 |
| TENCENT HOLDINGS LTD | 2 |
| SEMICONDUCTOR MANUFACTURI-H | 6 |
| KINGBOARD LAMINATES HLDG LTD | -2.3 |
| KINGBOARD HOLDINGS LTD | -5.1 |
| YANGTZE OPTICAL FIBRE AND-H | -4.5 |
| HUA HONG GRACE SEMICONDUCTOR | 7.8 |
| MEITUAN-CLASS B | 5.3 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | -4.2 |
| XIAOMI CORP-CLASS B | 2.1 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | -2.7 |
| GIGADEVICE SEMICONDUCTO-CL A | 9.1 |
| BOE TECHNOLOGY GROUP CO LT-A | 2.1 |
| EOPTOLINK TECHNOLOGY INC L-A | -1.6 |
| JCET GROUP CO LTD-A | 2.3 |
| JIANGSU ZHONGTIAN TECHNOLO-A | -4 |
| LUXSHARE PRECISION INDUSTR-A | -4 |
| HENGTONG OPTIC-ELECTRIC CO-A | -2.3 |
| BIWIN STORAGE TECHNOLOGY C-A | 1.2 |
| MONTAGE TECHNOLOGY CO LTD-A | 13.1 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.79 versus 6.80 Friday
- CNY per EUR 7.75 versus 7.77 Friday
- Yield on 10-Year Government Bond 1.72% versus 1.73%
- Yield on 10-Year China Development Bank Bond 1.78% versus 1.82%
- Copper Price 0.79%
- Steel Price -0.13%
