Hong Kong Internet Rallies Amid AI Supply Chain Weakness

Key News

Asian markets geared to the AI supply chain, i.e. "picks & shovels", including Korea, Japan, and Mainland China, were lower on light volumes, except for Taiwan.

Onshore China's Science and Technology (STAR Board) fell -4.02%, as AI supply chain stocks in both markets fell on weakness in the semiconductor, semiconductor equipment, technology hardware, electronic equipment, and communication equipment subsectors. Battery giant CATL fell -1.82% in Mainland China and -0.16% in Hong Kong. The momentum factor in both Hong Kong and Mainland China also fell, along with the earnings per share (EPS) revision factor. However, AI supply chain companies continue to announce very strong first-half year-over-year (YoY) profits, as we saw after the close in TSMC's results.

I suspect that an element of the drawdown is related to Korea's regulatory efforts to curb leverage in its market, combined with a strong year-to-date (YTD) move in Korean indexes that is leading to a pullback. For Mainland China, investors need to raise cash to participate in ChangXin Memory's (CXMT) July 27th STAR Board IPO.

Tomorrow, President Xi will give the keynote speech at the 2026 World Artificial Intelligence Conference, which kicks off tomorrow in Shanghai, and could be a catalyst for the AI supply chain. The STAR 50 Index is sitting at its 50-day moving average, which will be watched as a support level. Korean regulators raided the offices of three foreign chip makers, including Montage Technology, which fell -16.44%, though the entire space was off.

Hong Kong fared better, as Apple's Mainland products are now using AI models from Alibaba, which gained +3.09%, and Baidu, which gained +2.60%. Alibaba had another healthy day of net buying from Mainland investors via Southbound Stock Connect with a net buy of $361mm (HK $2.833B). Tencent +2.11%, as Hong Kong's most heavily traded by value on strong volume, also had a nice net buy from Mainland investors. The rotation from Asia tech into the lower valuation China technology in Hong Kong is a potential factor, as Meituan gained +4.56% and JD.com gained +0.95%.

Xiaomi gained +6.34%, after announcing its humanoid robotics technology platform. Auto had a strong day in both markets, led by BYD +4.6% in Hong Kong and +2.59% in Mainland China, as Hungary's former Foreign Minister joins the company. Fairly quiet otherwise.

After the close, Baidu announced it will convert its Hong Kong listing to a dual primary listing, which would make it eligible for Southbound Stock Connect. No date given, but I assume it will be by year-end at the latest.

Shenzhen-listed Tongfu Microelectronics fell -3.51%. However, the company announced first-half profit growth will be 288% to 337% year-over-year (YoY), which is RMB 1.6B to 1.8 billion from RMB 412 million, driven by "AI computing capacity construction".

So far this year, Mainland-lised domestic equity ETFs have experienced a tremendous round of redemptions, totaling $211 billion due to a dramatic reduction in exposure from the National Team and from investors aligned with the government, such as pension funds, insurance companies, and the Social Security Fund. The National Team tends to buy low and act as a market stabilizer and buyer of last resort during periods of market volatility. In the last week or two, net inflows into China equity ETFs listed in China have totaled $19 billion. Is the National Team back to buying? We will not know until these investors file their holdings with the local regulator. Regardless of whether it is the National Team or investors in China, it is a positive sign, in my opinion. Actively managed ETFs will list in China for the first time soonm after receiving regulatory approval for the first time.

Last Night's Performance

Country / Index	Ticker	1-Day Change
China (Hong Kong)	HSI Index	1.3%
Hang Seng Tech	HSTECH Index	2%
Hong Kong Turnover	HKTurn Index	6.1%
Hong Kong Short Sale Turnover	HKSST Index	6.2%
Short Turnover as a % of Hong Kong Turnover	N/A	0.2
Southbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	643.61
China (Shanghai)	SHCOMP Index	-1.8%
China (Shenzhen)	SZCOMP Index	-1.5%
China (STAR Board)	Star50 Index	-4%
Mainland Turnover	.chturn Index	-6.5%
Japan	NKY Index	-2.8%
India	SENSEX Index	0%
Indonesia	JCI Index	1.1%
Malaysia	FBMKLCI Index	0.5%
Pakistan	KSE100 Index	1.6%
Philippines	PCOMP Index	0.4%
South Korea	KOSPI Index	-6.4%
Taiwan	TWSE Index	0%
Thailand	SET Index	0.3%
Singapore	STI Index	-0.4%
Australia	AS51 Index	0%
Vietnam	VNINDEX Index	-0.0005

Indicator	Hong Kong	Mainland China
Today's Volume % of 1-Year Average	117	98
Advancing Stocks	368	2448
Declining Stocks	154	2573
Outperforming Factors	Growth, Quality, Liquidity	ESG Score
Underperforming Factors	Momentum	Momentum, EPS Revision, Large Caps
Top Sectors	Real Estate, Discretionary, Staples	Real Estate, Communication, Staples
Bottom Sectors	Energy, Healthcare, Industrials	Tech, Energy, Materials
Top Subsectors	Consumer Durables/Apparel, Auto, National Defense	Cultural Media, Auto, Catering/Tourism
Bottom Subsectors	Semis, Coal, Tech Hardware	Semis, Building Materials, Communication Equipment
Southbound Connect Buys	Alibaba, Z.AI (Very Large), Tencent (Large)
Southbound Connect Sells	KB Laminates, Xiaomi (Large), Hua Hong Semi, SMIC (Small)

MSCI China All Shares Index	# of Stocks	Average 1-Day Change (%)
Hong Kong Listed	165	1.59
Communication Services	11	2.15
Consumer Discretionary	28	3.11
Consumer Staples	13	2.51
Energy	6	-0.86
Financials	25	0.4
Health Care	16	-0.64
Industrials	22	0.23
Information Technology	12	0.41
Materials	14	1.36
Real Estate	7	3.58
Utilities	11	0.51
Mainland China Listed	386	-1.7
Communication Services	8	1.4
Consumer Discretionary	26	1.09
Consumer Staples	19	1.14
Energy	12	-2.4
Financials	64	-1.16
Health Care	31	0.69
Industrials	58	-1.54
Information Technology	95	-3.43
Materials	52	-1.7

US & Hong Kong Dually Listed	Ticker	1-Day Change (%)
Tencent HK	700 HK Equity	2.1
Alibaba HK	9988 HK Equity	3.1
JD.com HK	9618 HK Equity	1
NetEase HK	9999 HK Equity	1
Yum China HK	9987 HK Equity	1
Baozun HK	9991 HK Equity	1.4
Baidu HK	9888 HK Equity	2.6
Autohome HK	2518 HK Equity	4.7
Bilibili HK	9626 HK Equity	5.3
Trip.com HK	9961 HK Equity	2
EDU HK	9901 HK Equity	1.4
Xpeng HK	9868 HK Equity	7.6
Weibo HK	9898 HK Equity	1.1
Li Auto HK	2015 HK Equity	3.3
Nio Auto HK	9866 HK Equity	2.2
Zhihu HK	2390 HK Equity	1.3
KE HK	2423 HK Equity	4.3
Tencent Music Entertainment HK	1698 HK Equity	4.5
Meituan HK	3690 HK Equity	4.6

Hong Kong's Most Heavily Traded by Value	1-Day Change (%)
TENCENT HOLDINGS LTD	2.1
ALIBABA GROUP HOLDING LTD	3.1
KNOWLEDGE ATLAS TECHNOLOGY-H	-9.3
XIAOMI CORP-CLASS B	6.3
MEITUAN-CLASS B	4.6
SEMICONDUCTOR MANUFACTURI-H	-1.4
KUAISHOU TECHNOLOGY	5
HUA HONG GRACE SEMICONDUCTOR	-7
KINGBOARD LAMINATES HLDG LTD	-13.2
POP MART INTERNATIONAL GROUP	6.9

Shanghai and Shenzhen's Most Heavily Traded by Value	1-Day Change (%)
ZHONGJI INNOLIGHT CO LTD-A	-4.8
SUZHOU DONGSHAN PRECISION-A	2.4
GIGADEVICE SEMICONDUCTO-CL A	-10
MONTAGE TECHNOLOGY CO LTD-A	-16.4
EOPTOLINK TECHNOLOGY INC L-A	-2.4
TONGFU MICROELECTRONIC CO-A	-3.5
CAMBRICON TECHNOLOGIES-A	-5.1
UNISPLENDOUR CORP LTD-A	8.6
BOE TECHNOLOGY GROUP CO LT-A	-5.2
JCET GROUP CO LTD-A	-10

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 6.76 versus 6.77 yesterday
• CNY per EUR 7.75 versus 7.73 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 -0.35%
• Steel Price +0.10%